More Wireless Choice May Affect The Big Cellular Carriers

| About: Alphabet, Inc. (GOOG)
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The Next Web reported yesterday that Google (NASDAQ:GOOG) had acquired a Wi-Fi hotspot company. This was based on a press release that turned out to be false. However, Google is still likely to move into providing wireless coverage in some form. The Wall Street Journal reported recently that Google may partner with Dish Network (NASDAQ:DISH) to build a wireless network. Another approach would be for Google to focus on building smaller Wi-Fi areas, similar to what it's doing with Google Fiber.

As I discussed in my previous article on Google Fiber, Google wants people to have fast Internet access without any provider having too much leverage over Google. In theory, Google could achieve this goal by buying a company like Sprint (NYSE:S), but this isn't likely to happen for various reasons. Instead, Google will likely move into providing wireless access on a smaller scale, something that could threaten cellular companies like AT&T (NYSE:T) and Verizon (NYSE:VZ). Google may prefer to focus on smaller areas to show what is possible, which encourages others to improve their quality of services and allows Google to expand if it became necessary.

If Google partners with another company to launch a full cellular company, they could directly shake up the market. They could also have a long-term effect if they just launch a smaller network or even if they just provide greater Wi-Fi access. While they probably won't try to provide vast, city-wide Wi-Fi, they could expand Wi-Fi coverage enough to make a difference. Many people may feel they need many GB of data from their cellular company now, but they might change their mind if most of the locations they visit have good Wi-Fi access. This may then cause people to reconsider their expensive data plans.

One area where the cellular companies have control is over people's smartphones. New smartphones can cost $500-$600 to purchase without a cellular contract, and $100-$200 with one. People don't like shelling out a lot of cash upfront, so in the U.S. most people agree to expensive long-term contracts that benefit the carriers. However, Google is challenging the status quo in this area too. It recently released the Nexus 4 smartphone, which got excellent reviews, but only costs $300. That's just $100 more than what some similar smartphones cost with a contract. This could cause many people to change the way they purchase phones.

However, the carriers still control the cellphone service itself. They use this control to prevent people from using smartphones on their networks without a data plan. If there's more competition or greater Wi-Fi access, people may end up getting switching from the big cellular data plans. In addition, Google has always been promoting greater openness and choice in this area. In 2008, Google bid in a spectrum auction just to ensure that certain openness rules took effect. As Google announced on its blog:

Google's top priority heading into the auction was to make sure that bidding on the so-called 'C Block' reached the $4.6 billion reserve price that would trigger the important 'open applications' and 'open handsets' license conditions.

Verizon won that auction on spectrum, but at a price that ensured that it couldn't prevent devices or applications from running on its spectrum. This means it wouldn't be able to block people from using apps such as Google Voice on its network. In fact, the company was fined for preventing people from using its phones as Wi-Fi hotspots. The second rule means that Verizon also has less control over what devices people use on that spectrum, giving people greater choice.

Google or other companies may move into providing more cellular or wireless coverage, which could threaten the control that the big cellular companies have. This may cause people to switch to new alternatives or to downgrade their expensive data plans. Users will get more choice, but the big cellular companies may lose revenue.

Disclosure: I am long GOOG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.