Google attempting to become MVNO
Google (NASDAQ:GOOG) finally confirmed, after much speculation, that it plans to join the wireless bandwagon as a mobile virtual network operator (MVNO), a move that is part of Google’s Project Nova. While this news has many investors on the edge of their seats, it may be too much sugar for a dime. The reality is that Google isn’t constructing some delightfully disruptive network, as it did with Fiber; neither is it providing anything of a higher quality than what’s already available.
The company’s plan is to use a pre-existing network belonging to another corporation, with Sprint and T-Mobile being the company’s top picks. For a company whose mantra is “don’t be evil,” Google seems to have chosen some rather infernal bedfellows; and considering the plethora of formal customer complaints and recent lawsuits against these two companies, it appears that Google will be doing customers no favors whatsoever. Just last year, both T-Mobile and Sprint were forced to pay multimillion dollar settlements because of their criminally parasitic business practices and horrible service.
In March 2014, it was reported that T-Mobile USA Inc. was forced to shell out $5 million in a class action settlement regarding violations of consumer privacy laws. A total of 106,157 Class Members filed the lawsuit against the company, but it’s possible that more people could have fallen victim and took no action because they were simply unaware of both their rights and the class action suit. It was subsequently reported in December 2014 that T-Mobile, as part of their settlement with the U.S. Federal Trade Commission, was forced to cough up another $90 million in customer refunds as a result of the company’s corporate thievery- T-Mobile had fraudulently “crammed” their customers’ bills, meaning they added charges to their customers’ mobile bills from third-party companies without the knowledge or consent of their customers. Sprint, Verizon and AT&T also have a history of cramming customers’ bills.
Sprint, it seems, is even more brazen in their unbridled avarice. In addition to being slapped with a class action lawsuit because they failed to provide 4G services to customers who specifically paid for 4G, Sprint also had the audacity to rip off Uncle Sam. In 2013 it was reported that Sprint’s attempt to dismiss a $300 million tax suit filed by the New York’s attorney general was denied by New York’s supreme court. The judge presiding over the case said the claims “satisfactorily allege that Sprint knowingly submitted false monthly tax statements.” The whistle-blower suit cropped up in 2011 after Sprint decided it could withhold up to 25% of the taxes it collected on fixed-rate wireless contracts. Then, in 2014 it was reported that Sprint was being sued because it had overcharged the U.S. government $21 million for wiretaps. Sprint, along with other telecom and IT giants including Google, regularly collaborate with the U.S. government to invade the privacy of the taxpaying public, so in this case, the U.S. government invited trouble through its own unconstitutional skullduggery.
Nevertheless, Google’s stock jumped almost 2% after it’s MVNO announcement, indicating assumptions that Google is once again doing something phenomenal, as it did with search and mobile operating systems. But the increase is likely associated with the bullish notions of Google’s investors, who are probably expecting the MVNO move to result in a lot of profitable hype, as did Google’s Fiber.
It would appear that Google’s investors don’t quite understand the reasons for Fiber’s success, let alone the differences between Fiber and this MVNO stunt. Simply put, Fiber was useful. Its disruptive qualities resulted in broadband customers finally getting some value in return for money spent and gave other broadband companies a richly deserved slap in the face with its jaw dropping download speeds.
When Google first introduced Fiber in Kansas City and Austin, the download speeds were insanely fast at 1 gigabit (Gbps) per second. It was 100 times faster than the typical net speeds found across the U.S. Fiber allowed customers to download an entire HD film in 7 seconds, or 100 pictures in 3 seconds. Google set the price of Fiber services at $70 per month. While the cost is prohibitively expensive for most working class people who struggle just to pay rent on below poverty level wages, it is still competitive because it is equal to or less than what companies such as CenturyLink, Comcast and AT&T charge for dismally slow and unreliable services. While some corporates finally answered their customers’ demands for value, and increased their speeds, others chose to shoot themselves in the foot. The more stubborn lot, who refused to provide value to their customers in the form of increased speeds, have been forced to slash prices.
In this sense, Google’s Fiber and its MVNO plan are poles apart. At best, Google might be able to price MVNO services cheaply, but since prices across the industry have already dropped, this MVNO plan doesn’t appear to have much potential in terms of generating meaningful profit. Another challenge that Google’s MVNO plan faces is the fact that, today, growth in the U.S. wireless market comes in the form of data consumption and new connections requested by existing customers. Google’s success in broadband is due to the fact that customers rarely have more than 2 or 3 broadband providers to choose from in most locations, but since more wireless options are available nationwide, the company may be overestimating the value of its MVNO scheme.
While Google has been trading around 7% higher in recent weeks, most of these gains are linked to MVNO speculation. While Fiber looks to be a sure bet, it seems MVNO won’t do much for Google, or its investors, in the long run.