Google Inc (NASDAQ:GOOGL) might just revolutionize the telecommunications industry with its new wireless service, but certainly not any time soon.
That kind of revolution wasn’t really GOOGL’s intention, anyway.
On the face of it, GOOGL new wireless service called Project Fi looks like it could be a good deal for consumers and bad news for the wireless telecom companies.
For $20 a month, Project Fi includes unlimited monthly talk and text services, with coverage in more than 120 countries. Data costs another $10 per gigabyte of data a month. Best of all, users get reimbursed for their unused data.
What makes Google wireless unique is that it depends on cellular network sharing and seamless switching between Wi-Fi and cellular connections.
In Project Fi, a user’s phone finds the fastest, most reliable connection available. That could be a user’s home network, or one of a million open WiFi hotspots that GOOGL has verified as being fast and reliable. If Wi-Fi isn’t available, a Project Fi phone find the best 4G connection available on either the Sprint Corp (NYSE:S) or T-Mobile US Inc (NYSE:TMUS) network.
It certainly sounds promising — and could very well represent a threat to traditional wireless carriers — but the industry has nothing to fear for now. GOOGL itself calls Project Fi an experiment. Anyone who signs up is going to be a guinea pig to an even greater degree than most early adopters.
A GOOGL Moon Shot
Even more limiting is that the service is available only on Google Nexus 6 phones. Yes, it’s supposed to be a terrific phone, but it also costs $649 without a contract.
There’s also a potential benefit to traditional wireless carriers lurking in GOOGL’s Project Fi. The idea of network sharing isn’t new, and if it really is seamless and cost effective, that could show the rest of the industry a way to make their finite resources more efficient.
The downside for the old guard like Verizon Communications Inc. (NYSE:VZ) and AT&T Inc. (NYSE:T) is that it adds even more pricing pressure to an already crowded field. Depending on the plan and carrier, GOOGL Project Fi can be $20 cheaper per month compared to similar offers from the major carriers.
GOOGL’s plan to credit subscribers for their unused data would be another margin-squeezing move if VZ and T decided to match it. The pay-for-only-what-you-use model is not something the major carriers want to adopt.
As noted, however, GOOGL’s Project Fi is no threat to T or VZ just yet. It’s a niche service available to a very small subset of wireless customers. Not that GOOGL cares, mind you. GOOGL loves so-called moon shots like Project Fi. And if it doesn’t work, Google will have no regrets simply walking away from the Google wireless project.
To be sure, the traditional carriers will be watching developments very carefully, and will no doubt have countermeasures ready to go if they’re needed. Investors in telecom stocks can take a similar view. There’s nothing to be concerned about this early in the game, but any progress Google wireless makes is certainly worth watching.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
