Why Google’s MVNO “Nova” is just what the Wireless Industry Needs

Google has signed a deal with Sprint’s CEO Masayoshi Son, and is in negotiations with T-Mobile, to launch a Mobile Virtual Network Operator (MVNO) service using Sprint and T-Mobile wireless networks. Google has stated that its new wireless service, known as “Nova”, will be “experimental” and that the end-goal is to provide best-case seamless connectivity to consumers. According to the Wall Street Journal, an unnamed source stated that Google has been working on the project for over a year, perhaps in hope that the FCC would have looked more kindly on a Sprint/ T-Mobile merger.

How will Google’s Nova work?

The specifics haven’t been publicly disclosed, but the gist of it is that Nova will act on behalf of the user by automatically search for WIFI first since the use of WIFI is free. Google will likely develop WIFI hotspots in those areas where it has deployed Google Fiber and enter into roaming agreements with other WIFI providers. Then and only then, if a sufficient WIFI signal is not available, will the Google Nova devices turn to T-Mobile and Sprint’s LTE networks, seeking the best signal/data speed available. If the cost of data on the networks is different between the T-Mobile and Sprint MVNO plans, the Nova device may default to the cheaper networks provided the signal is sufficient for a decent Quality of Service.

Presumably, new Google Android devices will be developed that will support all radio-frequency spectrum bands – or at least the ones that Sprint and T-Mobile use for their networks. Nova will likely be launched as an unlimited data plan and Google will probably sweeten the service offering by adding Google Voice and possibly YouTube access for free. We assume that the devices will be able to seamlessly switch from WIFI to LTE and vice versa easily since T-Mobile already offers phones that switch from WIFI to LTE. What we don’t know is whether a call on Sprint’s LTE network can be easily transferred to T-Mobile’s LTE network if needed.

How will Google’s Nova affect Sprint and T-Mobile?

Sprint added a “volume trigger” clause into its agreement with Google stating that their deal could be renegotiated if Google ends up taking over the market (e.g.: increasing churn for Sprint). We suspect that T-Mobile might include a similar caveat in its final agreement. That fear, however, hasn’t stopped #3 and #4 wireless carriers (which is which is hard to tell at the moment), from jumping at the partnership.

The deal will likely prove to be lucrative for both companies. Industry analysts see the potential for Sprint and T-Mobile to split around $1 billion in EBITDA by 2018 as a result of the partnership. Sprint and T-Mobile will profit by selling unused capacity on their individual networks to Google at perhaps slightly discounted wholesale prices. T-Mobile claims that they are only using 1/2 of their network capacity.   Sprint has a very strong spectrum position especially in the 2.5GHz spectrum which is suitable for data in urban areas.

How will Google’s Nova affect AT&T and Verizon?

Assuming that the quality of the network will be solid and the devices truly do handle seamless handoffs between WIFI and LTE networks, Google’s new mobile service could push AT&T and Verizon to lower their prices for subscriber voice and data plans and/ or increase data caps on existing plans.   Alternatively, it might force both companies to offer some subsidized data for video or other ad related messages. This is especially likely in markets where Google Fiber has already been deployed (Kansas City, Austin, Provo), or plans to be deployed (Nashville, Atlanta, Charlotte, Raleigh-Durham).   It is important to note that Google Fiber is not even ubiquitous in its existing markets. Google deploys only where there are enough users to justify the cost of deploying fiber.

Why is Google doing this?

In Q3 2014, Google reported profits of $16.52 billion, a 20% rise in profits over the same period in 2013. Keep in mind that 90% of Google’s revenue comes from ads, and Google controls 49.3% of mobile ad revenue worldwide, with Facebook at 17.6 (This spread, however seems to be narrowing since the launch of Facebook’s new mobile ad platform “Audience Network”).

Interestingly, in early-2014, the number of mobile users not only met but surpassed the number of desktop users, which is why mobile productivity apps like Google Now have a higher than ever chance of success. Additionally, industry analysts suggest that by this year (2015), the majority of Internet search activity will be performed on mobile devices, and this includes paid clicks.

Google is concerned that unless it controls its own devices and more importantly the pipe that provides them, that wireless service providers like AT&T and Verizon can reduce or make it more difficult for users to access Google services.   Google sees Nova as part of an overall strategy of making its services available to users and controlling its own destiny. This strategy includes Project Loon (balloons that provide internet connectivity) and substantial lobbying efforts to convince the FCC to authorize additional unlicensed spectrum in higher bands.   Furthermore, Google can afford to subsidize content distribution via YouTube, provide cheaper prices to mobile subscribers using WIFI, and T-Mobile and Sprint’s infrastructure. Doing so will certainly disrupt the traditional order of thing, which is fine by Google. Nova will be paid for by revenue from other services, like advertising and search.

Will Google’s MVNO “Nova” be Successful?

While there is a great deal of speculation in the industry regarding whether or not Google will be successful as an MVNO, we expect that the venture has, at the very least, a fighting chance. Remember that Google is not completely unfamiliar with spectrum or the wireless market. In fact, it was one of the original investors in Clearwire – the original 2.5 GHz spectrum play, which Sprint now owns, and is the architect of the Android system.

The sharing of T-Mobile and Sprint’s nationwide networks could spearhead the expansion of Google Fiber to new markets that will offer customers a “triple-play” package of Internet, voice and TV – at a likely unbeatable price. Google’s Android OS currently enjoys more than half of the U.S. market share (52% compared to iOs at 42%). Android is designed primarily for touch-screen devices from smartphones and tablets to Google Glass, Google TV and Android Auto. We expect that Google’s MVNO venture could prove crucial in Google’s efforts to increase the market spread between Android and iOS, favorably for Google, and might even spur the viral acceptance of Google Now as a household must-have.

However, most MVNO’s have only had limited success including similar WIFI-first MVNO’s like Republic Wireless and FreedomPOP.   Naysayers suggest that Google simply doesn’t have the experience in this area and that it will be very difficult for Google to develop the scale necessary to have any meaningful impact.

From our standpoint, we are hopeful that Google Nova is a success. First and foremost any venture that causes more competition in the industry should yield better prices for subscribers and/or higher data caps.   If cheap enough, Google Nova may spur users to carry multiple devices and keep AT&T or Verizon service for their phone, but forego them for data intense devices like tablets and laptops.

How will Google’s Nova Affect New Cell Site Builds?

Cisco projects that mobile data use will increase by 50% between 2013 and 2018, due primarily to an increase in smartphone and tablet connections, streaming video and faster connections (faster connections ultimately result in more data demand). Growing data demand necessitates new cell site builds – of traditional macrocell towers as well as small cells and increased Wi-Fi offload capabilities.   If all is successful, we expect that both of Google’s partners, Sprint and T-Mobile will experience increased revenues, which will allow them to focus on adding capacity to dense markets in big cities and/ or complete rural build-outs in underserved areas. As it pertains to AT&T and Verizon, if Google is successful at increasing data caps, both entities will need more spectrum and more sites to meet the pending need. All in all, a successful Google Nova will increase need for existing cell sites and spur new site development.

Leave a Reply

Your email address will not be published. Required fields are marked *