There is over-powering logic to the advent of brand name MVNOs (mobile virtual network operators.) Now that Google is taking the first step, our question is: how far behind is Facebook likely to be.

The Logic and Google’s History In Telecom

The basic question we have about Google’s entry into being a wireless carrier is: What In The World Took These Folks So Long??

For the past several years, and certainly since at least 2007, it’s been obvious that it would become increasingly difficult for the high growth sectors of the information economy ecosystem – particularly device and apps providers – to accept limitations to their growth based upon mobile carrier demands to protect high profit margins and an assortment of restrictive policies, characteristics of a duopoly era.

As we stated in our 2011 study The Mobile Traffic Deluge, “Put another way, we do not believe that these leading growth companies can accept the carrier industry’s profit requirements, technical terms and conditions as a long-term limiting factor, a cork in the bottle, to the magnitude of growth they expect to enjoy from the mobile Internet and mobile data broadly defined.”

The terms and conditions include how and where to connect to the carriers’ networks. Google will want to connect as close to the customer and the RAN as possible.

A clear reason why this may have taken so long for Google to implement may be cultural as the IT mavens have always regarded the quasi regulated wireless companies as slightly “limited”.

Back in 2007, it was obvious that Google, in particular, was already making, what we called “various feints at entering the carrier business.” These included:

AREA	INITIATIVE
Mobile
700 Auction	To bid at least $4.6B for C Block
Handsets	Android platform and UMA alliance announced
Network	Testing wireless network in CA
WiFi	Network in Mountain View, CA
WiFi	Invest in FON- user-based WiFi spots
Femtocells	Invest in Ubiquisys
White Space	Experimenting
Clearwire	Rumored to be a potential investor
Fixed
Servers	Developed own products
10Gb Ethernet	Reported developing product
Dark Fiber	Numerous lease deals reported in ’06
Trans Pacific Cable	Reportedly under consideration

Subsequently, in the mobile area, the company did invest in Clearwire, along with Comcast and others; it acquired and then sold smartphone maker Motorola; and it fought a continuing brush war at the FCC with the carriers, especially Verizon, about Open Mobile rules. In the fixed telecom segment it rolled out its initiative to provide local metropolitan fiber networks, starting in Kansas City.

We labeled Google’s highest visibility project, the fiber optic networks, “puzzling,” because, as we stated in our 2012 study, The Future of The Mobile Cloud, “we believe Google has a larger problem with the structure and performance of wireless networks, not fiber. It would have been better advised, in this view, to have plunged money into demonstrating an alternative wireless carrier.”

Google and Facebook In Mobile Telecom

Google and Facebook have similar sets of incentives regarding the mobile telecom business. They are the leading companies in the mobile Internet ecosystem. Their continued growth depends upon constant introductions of more and more complex and refined apps and services. All of these apps and services demand: high quality mobile network coverage; easy availability of mobile access; lowest economically sustainable cost for the mobile network segment.

The two companies’ efforts have been spilling over each other in their race to achieve what Google had described way back in 2007 as “more choices in an open and competitive” mobile industry.

They are both entertaining virtually every technology and means to achieve the widest, cheapest dispersion of mobile connectivity. In 2014 Google acquired drone provider Titan Aerospace, after Facebook was rumored as acquiring the company. (Facebook acquired UK drone company, Ascenta.) Google has pursued the high-altitude balloon project, Loon, and most recently it invested in satellite operator, SpaceX. Facebook launched Internet.org in 2013 with partners including Samsung, Ericsson, Qualcomm and others to develop data compression and smartphone technology to extend access to economically under-developed areas. Facebook’s founder has stated that the company is considering use of every means, from geosynchronous satellites, to balloons, to free space optics, in its quest to provide universal, cost effective mobile access.

It would appear almost counter-intuitive for Facebook not to consider entering the MVNO business, initially in the U.S., as Google is doing. One motivation is to gain the learning curve opportunity that Google is going to achieve and not to allow Google to dominate the area of “branded mobile service.”

The concept of “branded mobile service” is potentially a powerful one. After all, the duopolists in the U.S. (and elsewhere) have virtually no brand appeal. Compared to Apple, Facebook, Google, the Verizons and AT&Ts (lump Comcast in there too) are virtually unwanted necessities, under current industry structure.

The MVNO structure is actually an excellent one for developing the strategic potential of these high growth leaders. In our view, the carrier position in the market, evaluated objectively, must decline into being a component of an overall data/mobile cloud business that can experience tidal wave growth, far beyond current consensus expectations. The networks are crucial to the other ecosystem participants, (just as trucks are crucial to retailers) but the networks’ value is dwarfed by the value creation potential of the other participants and these growth companies’ vital interests.

Outlook – And Long Term Benefits To Entrenched Carriers

While we see the vast potential for industry change that the entry of these powerful companies could bring to the mobile industry, we have reservations. We are particularly concerned about Google’s management and what we view as their penchant for dabbling in areas beyond their basic business, but not defining a clear business strategy and sticking to it.

That is one of the reasons that we would be encouraged if Facebook does jump into the mobile network service fray as it would add a player that is showing itself capable of making mega-sized strategic bets and would also probably add significant focus to Google’s efforts.

If events unfold as we are suggesting, it could have a long-term beneficial effect on the entrenched carriers, including Verizon and AT&T. This may seem counter-intuitive to many, because it runs contrary to consensus thinking that states that the carriers are at risk if they are reduced to being “a dumb pipe.”

Readers are advised that we dealt with this argument in our 2008 study, Open Mobile where we presented an alternative, namely a next gen “smart transporter” mobile carrier company. This included a detailed model with pricing and expense assumptions and P&L and margin and metrics analyses. It also included a comparison of an Open Mobile company’s results to those of the existing Verizon Wireless.

Our conclusions were:

1. The Model appears to be feasible and capable of offering sustainable and scalable profitability, under a reasonable range of assumptions.

2. Other forecasts, which have assumed that carriers must obtain significant shares of Internet and other data apps providers’ revenues and profits, in order to survive, appear likely to be highly erroneous.

3. Fears of “commoditization” of wireless and subsequent loss of profitability are also highly exaggerated.

4. Long term growth of the mobile Internet, of data and related services and apps is not inconsistent with long-term carrier profitability.

5. While it remains to be tested, the Open Mobile Model could offer superior returns to the existing wireless industry model.

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