One of the big losers among the “other bets” of Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) was Google Fiber, its “last mile” Internet access solution. Google went so far as to run a fiber cable behind my house in Atlanta, Georgia before realizing that its investment was a lemon. So as far as I know, that cable remains unlit.
But thanks to its cloud, Google has managed to make some tasty lemonade from those lemons. It has created a mobile service called Google Fi that is about to give incumbent carriers like AT&T (NYSE:T) and Verizon (NYSE:VZ) a big headache.
I know that because I’m in the process of dropping my AT&T mobile coverage for Google Fi, which I think is a better deal.
Here’s the Deal with Google Fi
Google Fi offers unlimited phone and texting for $20 a month. It then charges $10 for each gigabyte you download, up to six. You can add additional phones on that $20 per month charge. This means that for a family of four you’ll pay $140 per month.
Google Fi is a mobile virtual network operator. But unlike earlier MVNOs, which resold the services of one carrier, Google Fi is reselling Sprint (NYSE:S), T-Mobile (NASDAQ:TMUS), U.S. Cellular (NYSE:USM) and Three. Three is a European carrier owned by CK Hutchison (OTCMKTS:CKHUY) of Hong Kong.
This lets Google’s cloud find the best coverage it can, arbitraging among various U.S. networks. It also means that when I travel to Europe next week, I don’t have to buy a SIM card. If you’ve ever tried to load a third-party SIM in your phone and keep your old one for the trip back, you’ll understand this is a very big deal.
Because Google Fi service is app-based and is using Google Cloud, calls come in on my PC as well as my phone. If I’m working and have my microphone on, I can answer them from my desk. Google Fi also transcribes voice mail messages, so I see what the spammers are saying even if I hang up on them.
After I began using the service, Google rolled out an “unlimited” plan. It offers 100 GB of Google One storage and 22 GB of data for each plan member at $180 per month for a family of four, $70 per month if you’re all alone. The plan I signed up for is now called the “flexible” plan.
AT&T’s decision to invest in “last mile” assets like fiber cable and wireless, rather than cloud, was based on the idea that the last mile was a choke point. Clouds like Google wouldn’t be able to compete with it, and AT&T could also tie content to its lines, guaranteeing its position.
But that’s not what is happening. Consumers are leaving cable for streaming services that require only an internet connection. Now, with Google Fi, clouds are providing those connections. Carriers can still call the tune on pricing to re-sellers, but by having several, Google can arbitrage those costs.
AT&T is stuck with the technology debt of its copper lines, but no longer has even a shared monopoly in wireless. Google’s cloud means could even achieve the dream Masayoshi Son once had for Sprint.
The Bottom Line on Alphabet Stock
Clouds, and cloud software, are now the dominant facts of the global economy. Google Fi shows them to be the dominant play in the telecommunications world.
Alphabet shares opened for trade Sept. 20 at $1,233.64, with a trailing price-to-earnings ratio of 25 and a market cap of $860 billion. AT&T shares carry a trailing P/E ratio of just 15, along with a dividend yielding 5.5%, but the whole company is worth just $274 billion.
Thanks to the cloud, a 1998 startup is now worth 3.9 times a 110-year old monopoly. And it got there without taking a dime of government aid.
Dana Blankenhorn is a financial and technology journalist. He is the author of the mystery thriller, The Reluctant Detective Finds Her Family, available at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned no aforementioned securities.