The Future of Google Fi

Google announced on Wednesday that it was formally getting into the wireless business with a program called Google Fi. Where does it go with this and how did it talk carriers into letting it potentially steal their customers?

Pressuring the Industry to Change

Like Google Fiber and other programs before it, Google clearly wants to change the way the wireless industry operates. Getting involved, it can demonstrate to carriers an alternative way to do things, and with enough popular demand, it can pressure them to change.

There are two unique things about Google Fi today.

First, it switches between carriers depending on the strength and speed of the signal. The goal is to make sure that no matter where you are, you have the best and fastest signal available. This is something that current carriers would have a difficult time duplicating.

Second, it allows customers to only pay for the data that they use. A plan costs $20 for unlimited calling and texting and $10/GB of data. If you use less data than you paid for, Google refunds you in cash. If you paid for 3 GB but only use 2.5 GB, you'll get $5 back. If you go over your allotment, you pay $10/GB without any overage fees.

Carriers could replicate that pricing model. AT&T off and on has played with a reverse concept with rollover minutes and data over the years. But this change by itself wouldn't do much to transform the industry. I think there's more to it.

Google as the Carriers' Largest Business Customer

One prediction is that Google positions itself as each carrier's largest business customer, essentially taking over all the front-end customer service and sales functions.

Think of how much of a carrier's operating expenses are tied up in marketing, servicing and retaining individual consumers. What if carriers only had to focus on providing the best, fastest, widest coverage for as little as possible?

Since Google's model gives preference to a network based on speed and signal strength, carriers would focus on getting as much business from Google as possible by ensuring their signal was the best and the fastest. In an area where they have the same quality signal as a competitor, they would compete on price.

If carriers starting operating with Google as their main concern, investing in rural infrastructure would be more cost effective, too. They could build out areas that their competitors haven't yet and count on business from Google without ever having to advertise or sell a single phone.

Would Google Become a Monopoly?

Carriers would certainly be nervous about using this model if it meant that Google might take a big share of the market, because then it could set less favorable terms for carriers. But there is no shortage of companies that would likely be willing and able to step in and compete with Google on the same terms. Certainly Facebook, Microsoft and Yahoo would have an interest in competing with Google in this kind of environment. They could provide their own phones and their own customer experiences, regardless of a customer's location.

Free Phones

Clearly Google's interest in the wireless industry is getting more people connected to the Internet more often and with better connections. The more people surf and search, the more ads it can serve and the more money it will make.

A logical step for Google after securing a model and service that works reliably is to start offering service and/or phones for free to its customers, recognizing that the ad revenue will cover their costs. Google doesn't even need to change the current mobile experience or plaster irrelevant ads all over people's phones. It just needs to keep providing what it does now and get more people exposed to it more often.

Google isn't the only company that could use a model like that to entice more customers by offering free service.

The future of wireless might actually be free ... well, subsidized by ads.

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