Google’s Potential at Being an MVNO

I remember when the MVNO trend first started gaining steam about a decade ago. Disney and ESPN jumped on board along with a number of upstarts. This was the era of feature phones and the market was very different. Today, the wireless industry is more mature. Yet many of the underlying infrastructure dynamics remain the same. MVNO plays didn’t work back then. So what makes us think it will for Google now? For the sake of brevity, I want to focus on one main point regarding a potential MVNO play for Google.

In an analysis I wrote some time ago, I explained why Google should buy Motorola. I seemed prescient with the timing of this analysis because five days later Google did. But my logic was sound even beyond the patent point and my conviction was focused on Google’s business model. Having many firsthand interactions on behalf of hardware vendors with Google, it was clear Google wanted to see a world where computing hardware, PCs, smartphones, tablets, etc., are commoditized and offered at very low cost. Google needs “Google friendly” endpoints to be in the hands of as many people as possible for their business model to thrive. My theory with Moto was Google could essentially use the hardware to sell at cost or at a slight loss in order to get Google services-friendly hardware as far and wide as they could. However, the counterpoint to my view, which became clear in the following years, was how this strategy was not essentially carrier friendly. It was good for Google but not necessarily good for carriers.

Another key point to this discussion we have learned in the intervening years is US carriers now fundamentally understand that Android customers are not their best customers from an ARPU (Average Revenue Per User) standpoint. I have had dozens of conversations with US carriers and some international ones on this point. The wireless market is mature enough the carriers know which users they want the most. And, overwhelmingly in the US, that is iPhone customers. A recent analysis in a Wall St. note on Google, estimated an iOS customer is worth 3-4x that of an Android customer to Google. I have heard similar economic dynamics from the US carriers.

There are details of conversations with carriers I am privy to I unfortunately can not tell you about yet. But they are in the vein of smaller US carriers aligning more closely with Apple from a services standpoint in an effort to focus more on Apple’s customer base. Just look to T-Mobile’s WiFi calling for a signpost of where this may go. The key is how valuable and profitable iPhone customers are to carriers and they recognize this. A statistic that drives this home is, historically, carriers have never wanted a single device or platform to make up more than 30% of their sales. Yet today, because of the profitably of iPhone customers, they are encouraging it.

This leaves us with where Google fits. If the rumored carriers like T-Mobile and Sprint would like to focus on where the money is (Apple customers) then what happens to their Android customers? Perhaps this is where Google comes in. Google can license from either of them, (I’d bet on T-Mobile) and focus on serving Android customers in ways the carriers would rather not.

We can view this move defensively or offensively depending on how you interpret Google’s current position in the US. However, it is absolutely clear the iPhone 6 and 6 Plus are impacting Android’s US market share in significant ways. Sure, Google makes lots of money off iPhone customers so you could argue this isn’t a big deal. You can also argue Apple wants to continue to push Google out of iOS, impacting their future revenue from iPhone customers. This puts Google in a risky position.

I see this MVNO strategy as a defensive move to play a different role in controlling their own destiny. With US carriers looking to push iPhone more than Android, because of more favorable economics, Google has to do something. Particularly because of how valuable the US market is to Google.

Should this play out, I’m sure Google can work with handset companies who are hungry to gain US share, such as HTC or even, ironically, Motorola.

At the moment, I’m not optimistic that if this plays out it really moves the needle. Google would still be limited in the number of customers they could serve and ultimately the economics of Android still remain.

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Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio

31 thoughts on “Google’s Potential at Being an MVNO”

  1. A few things that I don’t understand, or am unsure of.

    1. Will this enable Google to get more data on user behavior than they already have?

    2. What can MVNOs do other than slashing prices? Is there any way Google can improve network quality, for example?

    3. Will this anger Verizon, AT&T, etc?

    1. 1. Yes, for those who subscribe.
      2. Probably not. If Google wanted to improve the network, they’d need to control the network, not rent it.
      3. We’ll see. So far, they have not regarded MVNO as a threat.

      1. We’ll see? They’re going to be a competitor/add competition to the market/affect others nonetheless. They have huge clout and combined with an MVNO & control of the dominant mobile OS – will put pressure on all carriers.

        I see this as causing significant friction/hostility between Google & mobile carriers. Just like there is hostility between OEM’s and Google.

        1. Yes. That is why I was asking those questions. I wanted to know what levers Google can pull as an MVNO.

          An MVNO simply rents a network, which means that there are severe limits to what it can do and control. I wanted to clarify what they were.

          One additional thing that I think is important to understand is the balance of power between Google and the carriers. A Five Forces-ish analysis. I’ll give my brief take below.

          In the case of Google vs. OEMs, the OEMs need Google’s permission to sell Android phones. They also lack a viable alternative to Android.

          In the case of the carriers, they don’t need Google’s permission to sell Android phones. They also have the alternative of selling iPhones.

          This suggests that Google’s power relative to carriers is much weaker, and they could face serious backlash if the try to disrupt the market.

          1. OEM’s do not need permission or pay Google a small fee for Open Android AOSP. By using Google Android with GMS, they pay fee, and placed under severe restrictions including lack of any ability to differentiate with other servces – building their own central apps or App Stores (that may compete against Google apps).

            So right now, all the realities favor Open Android vs Google Android. That’s why IMO we’ll see significant more OEM’s try to become independent (separate from dependence on Google). To actually create lock-in, long-term value, and have a sustainable business model. IE: actually make some profit & not die (right now all Google Android OEMs loses money except Samsung)

          2. Interesting possibility.

            Just staying on topic, carriers have a stronger position than OEMs relative to Google. If Google is having trouble controlling OEMs now, then it’s unlikely they will control or put significant pressure on carriers despite entering that market. At least that’s how I understand the market forces.

          3. It’s a Mexican standoff though: Carriers’ only alternative to Google is Apple, so carriers need Google to try and rein in Apple’s demands, which are very onerous. That gives Google quite a bit of leverage.

          4. more like near zero leverage with the carriers.

            It’s an MVNO licensing the time & spectrum FROM the carriers. Negotiations on terms will be annual.

          5. You’re forgetting that this is an MVNO. Google is beholden to the Carriers. NOT the other way around.

          6. That’s just not true, you’re confusing Google and Apple. Google is a lot more permissive.
            GMS OEMs must include all Google apps right on the 1st or 2nd home screen, w/o modifications nor omissions, and not sell any non-GMS Android phones anywhere covered by GMS (ie, China is exempt). That’s about it.
            They *can* include other app stores, competing apps, other services, even tweak the OS as long as they don’t break compatibility (see: pen extensions, multi-windows, the SD card hoopla…)

          7. Yes.

            We’re splitting hairs here.

            Even if you can add other non-default app-stores. The reality is they can never compete. (Power of Defaults).

            Smaller players simply have no leverage against monopolies (especially if they own the platform). Google is a monopoly.

            But I see where you’re coming from: yes OEM *can* technically include other non-default app stores. The reality is they have no hope until they *are* the default without the monopoly Service.

          8. I wouldn’t call going from “lack any ability to offer differentiate” to “yes they can have their own app store” splitting hairs. I’ll do you one better too: there’s no “default app store”, users have to launch an appstore to install apps the first time, and any appstore’s icon can be right next to Google’s, so I’m really not seeing your point.

          9. Also,
            – right now all non-Google OEMs are… dead, except Apple, and the ones operating exclusively in China where Google Android isn’t present (and those do sign up with GMS for non-China: Xiaomi…). Oh, and BlackBerry. Not betting on that one. So you say Google Android is bad… it does seem less bad for OEMs than… everything else ?
            – Samsung announced they’re rolling back most of their efforts to build up Google alternatives (chat, films…). Who has announced they *are* building those up ?
            – OEMs have all the opportunity they want to build lock-in, value, differentiate…. while staying w/GMS. If anything, GMS actually frees them to focus on innovative stuff, instead of trying to duplicate (usually not as well) functionality that is baseline for all OEMs. Unless you think OEMs actually *want* to build another search engine, OK Google, Google Now, Maps…

          10. Samsung was forced to give up on customizing/competing with Google Android using their closed android (non AOSP).

            They signed a deal last year.

            Regarding non-Google OEM’s. They’re far from dead. It’s future and Use will continue to expand. More OEM’s will adopt it. They have no choice.

          11. Samsung never had an Android fork. And they haven’t given up on customizing their GMS Android (Launcher, pen support, windowing, custom apps, own app store…) which is perfectly allowed w/ GMS Android.
            Which Non-Google Android isn’t dead or moribund in GMS areas ?
            Mmm… are you arguing Adobe, AutoCAD, SAP haven’t created lock-in on the common Windows platform ? I beg to differ. OEMs just haven’t found a meaningful way to add value to Google’s baseline offering. They can roll it out the second they do.

          12. I think it’s useful to boil this down to the two things carriers compete on. The first is their infrastructure, and the second is their customer count. By renting, Google doesn’t pose a threat to Verizon and AT&T on the first point. There’s some threat on the second point if Google can gain traction, but that success would first impact T-Mobile and Sprint’s capacity. Furthermore, if Google competes on price, they would be competing more directly with Spring and T-Mobile for customers. Of course, renting also generates revenue for T-Mobile and Sprint, which allows them to build more capacity, so that’s ultimately a bit of a wash. I think whether a Verizon or AT&T feels threatened will come down to whether Google gets enough traction and generates enough revenue for either/bot Sprint or/and T-Mobile’s to effectively grow their infrastructure.

          13. Totally agree.

            And to get that traction, will price be the only leverage that Google has? Can they differentiate?

            Typically, MVNOs compete on price and sometimes by their extensive sales channels. What will a Google MVNOS compete on and will that be enough to gain traction?

          14. By leaning on two networks they’re probably going to try to increase their reach. In addition to what’s been mentioned I wouldn’t be surprised if they have some network specific optimizations in mind to try to get a cost advantage over Spring and T-Mobile. Until we get more information though it’s anyone’s guess.

          15. True.

            That’s why I’m interested in knowing what the hard limitations of being an MVNO actually are. I’m sure that the web is going to awash with commentary by people who don’t recognize what Google can and cannot do as an MVNO. Techpinions is the site that corrects this.

          16. The issue with replacing $100+ Android with $500+ iPhones is that once you’ve tapped out the richer segment, those extra $400 will either exclude customers, or need to be taken out of network billings. Probably a bit of both. Also, Apple already have fairly onerous conditions for carrier as it is; carriers do need an alternatives to try and rein Apple in.

    2. my understanding is that everything mobile is data these days, and that MVNOs replace the carriers’ servers at the back end with their own, maybe even the wired pipes at some point (tower, local, regional…). So,

      1- yes, they’d get to see every single data packet: voice, texts, handoffs…
      2- they can improve the back-end: probably stop throttling, better interconnects (say, with Youtube…). They can’t improve the last mile, unless they sign up with multiple compatible carriers and find a way to transparently switch to the best one, which is probably impossible in the US because of wholly incompatible radio standards, as opposed to pretty much all the rest of the world which standardized on one per country/area (GSM in Europe…)
      3- open question. it’s less bad than Google outright buying Sprint or T-Mo, and it does mean they’re paying someone for bandwidth. Google don’t seem shy about going against ISPs with Google Fiber, and some carriers are ISPs too…

      1. Very interesting, thank you. I wasn’t aware that MVNOs replace the carrier’s backend, and I’m wondering if it might be different depending on country, local regulations and individual contracts. It makes me wonder where the bottleneck lies. If the bottleneck is solely in the “last-mile”, then improvements in the back-end might not mean anything and vice versa.

        Regarding Google Fiber, my understanding is that Fiber is, at least right now, a niche product that targets sparsely populated locations which other competitors did not find profitable enough to put a serious effort into. It does not compete for the more profitable customers that ISPs have. That would not be the case for a Sprint/T-Mobile backed MVNO, hence I’m not sure that the comparison is apt.

    1. Possibly yes. Along with other companies. But again the challenge here is for this to work in that regard in Google’s favor from a handset standpoint, is the device need to be competitive with others sold between $99 and $199, and the device Google offers needs to be free.

      There is an angle to this worth pointing out also. While I’m fairly certain this is mostly about Android. Should Google and Apple have some kind of wink wink nod nod that Apple is not going to completely cut Google off from iOS, I could see Google even offering iPhones as a part of this due to how much money they make from iPhone users.

      1. Not sure this would be a conditional deal…. Doesn’t make sense.

        Apple wants to be & will be paid from Google for the right to be default search on iOS & Mac. Apple does not need to leverage this to push iPhone on a potential MVNO from Google.

        Why: MVNO will need the iPhone anyway – just like any carrier – to remain profitable/sustainable. “You’re network is sh*t without the iPhone”.

        Apple has the upper hand on both points.

        1. Good point, there’s an asymmetry with benefits and needs in a deal between Apple and Google on this one, though honestly Apple wouldn’t have anything to lose by going along with it.

    2. The thing about the winks, We can see Gs aggressive intentions and ballsy moves if they sell and promote Xiaomi. They’d be directly threatening both Apple and Samsung. Samsung on marketshare and Apple on Xiaomi’s disregard of IP issues.

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