Details are currently sketchy about Google’s MVNO (mobile virtual network operator) deal with both Sprint and T-Mobile. But here are six key considerations, our decidedly unconventional views.
1. Just A Typical MVNO Deal? – We Doubt It.
Most have assumed this is a typical deal in which the MVNO takes whatever the carrier gives them regarding issues such as network quality. We would not be surprised to find that the agreements include assurances to Google regarding quality of service above and beyond usual MVNO deals and even guarantees as to levels of coverage and capex spending on network improvements by the two carriers.
2. Not Primarily About Price.
Despite the emphasis in the Wall Street Journal and elsewhere on the opportunity for Google to cut prices, we believe there are other ramifications as well and that Google’s objectives go beyond price cutting (which we do expect them to do). For example, Google can route traffic to its own servers; it can offer packages with Office Suite and other features; it can gain tremendous knowledge about customer usage patterns.
3. Explosive Growth Potential.
Sprint and T-Mobile received an almost immediate warning from their ever-friendly competitor Verizon to the effect that they better beware or, having allied with Google, they might soon have too much traffic on their networks. This might sound like the usual poke in the eye one would expect from a competitor, however, we point out that Clearwire, with many shortcomings, amassed a 10+ million customer base in fairly short order. Given Google’s branding value, we believe that growth could be dynamic and it reinforces our suspicion that Google would have anticipated this and insisted on QOS, unique technical interfaces and capex commitments from the carriers. (Some reports have stated that the MVNO agreement has “a clause limiting Google’s customer base.”)
4. Google/Softbank Relationship.
Some writers have stated that this MVNO deal was so important that it went “UP” from the ranks at Sprint, eventually even to the head of Softbank, which controls Sprint. Perhaps they have inside information – we don’t – however, we believe this deal has so much potential importance that we’d be surprised if it wasn’t cooked up between Softbank and Google. Here we have two “disruptive” companies that are accustomed to acting on the biggest stage in the world – and their deal had to sneak into the executive suite? Sounds unlikely to us. Note also that top Google exec, Nikesh Arora, (he ran marketing and was quite an independent force at Google) not only joined Softbank a few months ago, as vice chairman of the company and head of its media operations, but also was put on the board of Sprint in November 2014.
5. Net Neutrality Implications.
There is an unusual angle that could emerge from this deal, assuming that the recent flurry of net neutrality reporting leads to strong rulings from the FCC on net neutrality. While the net neutrality rules will apply to carriers, it is not clear that they will actually apply to MVNOs. This could create the anomalous situation that Google – the biggest exponent of Open Mobile and Net Neutrality – could be in a position to charge for “fast lane” and/or special access transmission features.
6. Apple Implications.
Some commentators have suggested that Google could link its MVNO to sales of its Nexus mobile devices. However, in view of the fact that Google’s mobile search business is highly dependent on iOS users, it would appear likely to us that Google’s MVNO is going to follow the market and sell the devices that customers demand. In addition, Apple has been implementing its own version of carrier network commoditization by having the widest array of spectrum resources available to users, e.g., adding the Sprint/Clearwire 2.4 GHz band to iPhone 6, as well as Apple’s universal and software SIM offerings.