The last thing telecom companies like AT&T Inc. (NYSE:T) and Verizon Communications Inc. (NYSE:VZ) need is more competition, so it’s not great news for them that Google Inc (NASDAQ:GOOGL) (NASDAQ:GOOG) and Cablevision Systems Corporation (NYSE:CVC) are expanding onto their turf.
After all, there’s essentially no growth left in the U.S. telecommunications market. Landlines are disappearing, and the wireless market is all but saturated. At this point, telecoms are fighting over market share, which leads to punishing price wars for all involved.
Growth, meanwhile, has to be bought outright in the form of mergers and acquisitions.
Now Google and Cablevision want to get in on the act. The search company and cable operator are rolling out Wi-Fi calling services. In Cablevision’s case, the service — dubbed Freewheel — will allow users to make calls over the company’s 1.1 million Wi-Fi hotspots installed in the greater New York area.
No, you won’t be able to make a call from, say, your car, but that may not matter to the success of such a service. According to Cisco Systems (NASDAQ:CSCO), more than 90% of mobile data traffic is carried over Wi-Fi networks — not cellular systems.
Cable companies have long wanted to launch wireless products to add to their triple-play packages of internet access, TV and landline phones. The quadruple-play packages that do exist require a cable company to partner with a wireless carrier. The owned-and-operated route would keep all the services in house for Cablevision.
Cablevision believes that offering Wi-Fi calling will help it retain customers in the era of cord-cutting, and might even be able to steal some market share from the telcos.
The price is certainly right. Cablevision’s Freewheel will offer an unlimited Wi-Fi voice, data and text plan for $9.95 per month. Non-Cablevision customers will pay $29.95 per month.
Google Ups the Ante on Cablevision
Google’s proposed service could be even more disruptive, since it will combine cellular with Wi-Fi networks. Google plans to search available signals from Sprint (NYSE:S) and T-Mobile US (NYSE:TMUS) and Wi-Fi hot spots and then chose the best connection to route calls, text and data, the Wall Street Journal reports.
Google’s service is supposed to roll out in the first half of this year, but it’s been delayed before, so don’t hold your breath. Cablevision will fire up Freewheel nationwide next month, but will only market it in its New York service area. One thing that’s sure to slow adoption in the early phase is that Freewheel will work with only one phone at first — the Motorola Moto G.
Wi-Fi calling services already exist, but the operators are too small to give the AT&T or Verizon anything to worry about. Google and Cablevision obviously represent much bigger threats to the telcos’ wireless businesses, and that could further hurt revenue.
As bad as Wi-Fi calling might be for investors in AT&T and Verizon, it could be a huge win for consumers. Price wars are hell on margins, but the increased competition should lead to cheaper, higher-quality services from all providers.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
