Connectivity Arbitrage and the death of the MNO
April finally saw the release of the long awaited and much anticipated Project Fi, Google’s entry into the retail cellular space in the US. Project Fi is the culmination of a series of acquisitions and decisions dating back as far as 2005 if not further. While still at this stage only an ‘experiment’ for google, the Project Fi launch is a huge red flag to the traditional carriers, a warning shot across the bow of the incumbent players that their world is about to change.
In 2005 Google’s acquisition of Android was a clear signal it took the mobile space seriously. Although the rumours of Google’s eventual and, with hindsight, fairly obvious move into the mobile carrier space only really started in ernest following their failed 4G spectrum bid in 2008.
“While I think Google could become a mobile provider, I’d view it as a nuclear option,” Jeffrey Hammond, Forrester Research, 2010
Google Voice was announced in early 2009 following the 2007 acquisition of GrandCentral. Despite being invite only the service had over 1.4 million users within 6 months, 570,000 of which used the service 7 days a week. Google Voice went GA in June 2010, a 2013 Wired blog put the subscriber number at 3.5 million.
Google Voice was followed in 2010 with the announcement of the Google Fiber rollout in Kansas City and the rather underwhelming but foundational Google Nexus handset launch. Since then Google has been busy refining Android along with the Nexus range, announcing Android One last year.
“Google made some noise about trying to open up the carrier space, but it learned the hard way with Nexus One that this is much easier said than done,” says Al Hilwa, IDC Analyst, 2010
That was until April of this year when the Big G took the covers off Project Fi and released it to a frankly rather unimpressed public. As with all of Google’s early engineering efforts Project Fi was invite only, it’s price point not particularly exciting and it was limited to a single handset, the huge Nexus 6.
However, behind the initial murmurs of disappointment, as with so much that Google does, there’s a rather impressive Master Plan, or at the very least a brief glimpse behind the curtain of World Domination.
The first inkling of the comet appearing at the edge of our solar system.
The reality is Project Fi combines what are individually interesting innovations into a single mobile virtual network operator (MVNO). At launch Google announced partnerships with both Sprint and T-Mobile USA making it the first dual carrier MVNO where the handset will select the ‘best’ network and the switch will be automatic and transparent to the user. This abstraction of the carrier from the user is a vital part of Google’s strategy to own the subscriber. As a consumer you don’t need to know which network you’re connected to at any point in time. The handset rather than the operator’s network is now responsible for your customer experience!
Google didn’t stop there, by adding automatic Wi-Fi to cellular handoff with an impressive 1 million free and open Wi-Fi hotspots they achieve a number of things. Firstly they extend the coverage available to subscribers compensating for the, in places, poor radio coverage offered by Sprint and T-Mobile. They encourage data use and therefore handset use by not charging for Wi-Fi data and most importantly they regain visibility into the data sessions of their subscribers along with their location without relying on the host MNO network.
The third interesting innovation is the pricing, although not a revolutionary price point for the US market, the simplistic volume based pricing of pay for what you use is an interesting move, especially in light of AT&T’s on-going dance with unlimited. More interesting, however, is the ability to rollover unused data from month to month. Again by making a subscriber pay in advance for the data usage Google is encouraging subscribers to use all their data allowance, something most mobile subscribers don’t tend to do.
The basic Fi plan is $20 a month and this includes; unlimited domestic talk and text; unlimited international texts; wi-fi tethering and low cost international calls with fixed rate charges in over 120 countries for roaming. On top of this data is charged at 10$ per GB.
Google has roaming agreements in place for over 120 countries meaning subscribers can continue to use data at the 10$ per GB rate and make calls at the flat 20c per minute, while abroad, vastly simplifying the confusing mess of varies tariffs faced currently by international travellers.
The comet can now be seen from Earth
Let’s not for one second fool ourselves into forgetting the number one aim of anything Google does is to learn more about you to allow them to more effectively segment and target you. As in the announcement blog they might claim Project Fi is an altruistic attempt to “push the boundaries of what’s possible” but the truth is as more and more usage goes mobile and more and more of the world moves to smartphones so do the advertising dollars. By increasing the data usage of subscribers through including Wi-Fi offload, allowing tethering, fixed price roaming and pre-paying for data Google is cleverly pushing subscribers towards using more and more data and, therefore, providing more and more advertising opportunities.
“You may have heard the news this morning about a very cool new project T-Mobile and Google have partnered on. Project Fi is going to make people think differently about wireless—and I love that. Anything that shakes up the industry status quo is a good thing—for both US wireless customers and T-Mobile.” – T-Mobile Blog, John Legere, CEO
In very simple terms, whereas before you needed to be using one of Google’s services such as search or gmail for them to profile you by providing the underlying network either through Google Fiber or now Project Fi it gives them access to all your online activity, your location and at least some of your Customer Proprietary Network Information or “CPNI”.
Google certainly isn’t the first to introduce innovative MVNO’s or features such as a Wi-Fi first strategy. Republic Wireless began offering a Wi-Fi first strategy in 2011 offering cellular fallback in 2013 gaining just about 300,000 subscribers along the way and even now offers a similar unused data bundle rollover. In the UK another very interesting MVNO startup, Anywhere SIM uses roaming to effectively allow subscribers to connect to any network in the UK and EU to avoid network ‘not spots’ although for now the switching isn’t automatic or seamless. Interestingly they have also extended the model across Europe allowing fixed price, no shock roaming similar to Project Fi.
The partnerships with Sprint and T-Mobile are key to the success of Google’s experiment. Even on Project Fi’s homepage Google is quick to point out it’s “close partnership with leading carriers”. With out the carriers Google would again have to bid for spectrum as well as build out a network, something I’m not sure they have an appetite for at this point.
Even the partners are joining in on the love fest, T-Mobile’s outspoken CEO John Legere recently addressed Project Fi, calling it ‘highly profitable’ for T-Mobile.
“Google is going slowly, learning from the trial. We’re really proud to be a part of it, fascinating to be partnering with them on something that’s highly profitable for us. We’re not usually in things for the good of our heart.” – John Legere, CEO, 2015
Agreeing to host the Project Fi MNVO might just have been a case of keeping your enemies closer. It’s risky business when one of the unique selling points of Project Fi is the abstraction of the subscriber experience away from the carrier. In these uncertain times when carriers are spending increasing amounts to know more about their subscribers behaviours in an attempt to avoid the lasting fear of becoming a dumb pipe while maximising revenues it seems Project Fi removes any chance for the carrier to inject any smartness into the pipe and although the volume based wholesale agreements might be profitable, for now, the Faustian bargain Sprint and T-Mobile have agreed to has literally given away the very ‘souls’ of their subscribers turning the carriers into nothing more than wholesale data providers.
A near miss…this time
So, is the end of the world as we know it for carriers? Dumb pipe or bust?
I wanted to wait to write this piece until the service was actually live and I had the chance to talk to some users, to gain some insight into how the service actually worked day-to-day and it’s a mixed review. For some the experience has been easy, it’s worked just as advertised, seamless network handovers, perfect WiFi transitions. For others, mostly those that BYOD it has to be said, it’s been nothing but a nightmare of lost signals, missed calls and unreachability.
The limited handset support on launch resulting from the need to provide coverage for multiple bands was a stumbling block but it’s only a matter of time before support for multiple bands is built in to more and more handsets in the areas where it’s needed. Project Fi shouldn’t serve as only a wake up call to the US carriers. It has to be noted that globally it’d be much easier with less bands to deal with and potentially a much higher profit in connecting the other 50% of the planet.
Probably the largest hurdle for Google and shining light for the carriers if Google ever wants to take Project Fi out of the experimental phase is the need for customer support. Google has been, since day 1, notoriously bad at customer support. Even finding a number to contact them is close to impossible even when you’re a paying Adwords customer! Carriers have continued to spend billions on customer service and customer experience. If Project Fi is to make it on a large scale Google will have to invest significant dollars in providing a customer service organisation, something they have little experience doing successfully.
However, it’s important to remember this is a tiny scale experiment for Google. There are many potential outcomes that could spring from the data generated by the Project Fi experience and it raises many very interesting questions. Is there are a market for free cellular service paid for by advertising, much like most other Google services? Or a sliding scale based on how much data you’re willing to share? Can Google strike wholesale deals with other carriers and extend the Project Fi idea beyond the US. Much like the Net Neutrality arguments forcing infrastructure sharing resulting in less investment who will invest in customer experience management if the network is being used by Google? What about Google Fiber and internationally Loon, how do they fit into the larger Google vision? With the brand identities of the carriers being eroded through the abstraction of the network how will they compete? Is being a dumb pipe such a bad thing after all?
The writing is clearly on the wall and the longer the carriers continue to ignore it the harder the inevitable impact will become. The comet is still out there, silently charging through space on it’s diminishing orbit around the sun and the day when Google or Facebook’s ambitions turn into a serious play for a piece of the CSP business is the day that comet will impact. Exactly how much of an “extinction event” this will be for the carriers depends on how they prepare for the inevitable.