Ever since Google announced Project Fi, many have wondered about Google's motivations. Google mentioned wanting to make WiFi to cellular hand-off seamless. But, why does Google want to make the WiFi to cellular hand-off seamless?
Driving the Mobile Data Costs Down
The ultimate goal of almost all projects that Google takes up is improvement in its ability to target search ads. Project Fi is likely no different. I believe Project Fi is likely trying to achieve that goal by driving the mobile data costs down and thereby, increasing usage of mobile devices and Google's knowledge of the customer where ever they happen to be.
The obvious way Project Fi might be trying to drive the data costs down is by upending the relationship mobile operators have with their customers. With Project Fi, Google has been able to insert itself between the mobile operators and the customers, albeit in the form of a MVNO (Mobile Virtual Network Operator - for example. US Cellular). As a customer, you now buy your phone and service from Google. How Google gets you the service is immaterial to you as long as the network coverage is good where it matters to you and the price is right.
So, how is Google delivering the service with Project Fi? Google intends to keep the consumer device primarily on the open WiFi hotspots or ones that you have access to. It has developed a database of open WiFi hotspots around the world in the course of its Google Maps efforts. It is now putting that database to work to ensure that the mobile device stays in a WiFi hotspot most of the time. When there's no available WiFi hotspot (or if the available connection doesn't support quality of service necessary to support a voice call), T-Mobile and Sprint networks will serve as backups. With eSIM (embedded SIM that is programmable), Google is able to query the two mobile networks and find the one with the best signal (or probably just the cheaper) network.
Suddenly, T-Mobile and Sprint (the MNOs - Mobile Network Operators) aren't relevant to you, the customer, any more because of this arrangement. While T-Mobile and Sprint are happy now to get the wholesale business from Google, Google has the opportunity to negotiate lower rates, if volume picks up in the future. (Under supposed terms of service, T-Mobile and Sprint also have the power to renegotiate the rates. But, really, are the rates going to go up with higher volumes?!)
So, is this the extent Google can push the game?
I think not. There are at least two other ways Google is likely to continue to pursue reducing the mobile data costs. The first avenue Google can pursue is by sharing the WiFi-cellular transition technology with MVNOs to reduce their costs, without itself putting up capital to run a large retail MVNO operation. Large amount of bandwidth available for WiFi could make spectrum a commodity. The second avenue is by using Project Loon to reduce the leverage of MNOs in rural areas where low-band spectrum (600, 700, and 800 MHz) has been essential for coverage.
So, is this the extent Google can push the game?
I think not. There are at least two other ways Google is likely to continue to pursue reducing the mobile data costs. The first avenue Google can pursue is by sharing the WiFi-cellular transition technology with MVNOs to reduce their costs, without itself putting up capital to run a large retail MVNO operation. Large amount of bandwidth available for WiFi could make spectrum a commodity. The second avenue is by using Project Loon to reduce the leverage of MNOs in rural areas where low-band spectrum (600, 700, and 800 MHz) has been essential for coverage.
Driving Down the Costs for Other MVNOs with Call Transition Technology
As I mentioned before, Google's stated objective is to make the call transition from cellular to WiFi and back seamless. While some MVNOs such as Republic Wireless, FreedomPop etc have offered similar service to Project Fi's, the user experience during transition is less than ideal - call drops are frequent.
We can safely assume that Google is better positioned to accomplish this task than Republic Wireless, FreedomPop etc. Ensuring seamless transition likely needs changes to WiFi standard to allow low latency transitions, among other problems that need to be solved for a seamless transition. Google is likely in a much better situation to push the changes needed than a small operator such as FreedomPop.
Once Google is able to perfect the network technology necessary to ensure seamless transitions, Google plans to share the technology with the mobile operators. Thus, all operators (MNOs and MVNOS) will have access to hundreds of MHz of bandwidth with just the current WiFi bands in 2.4GHz and 5GHz. Given that the heaviest current data use typically happens to be at locations where customers send most of their time (homes, offices,coffee shops, malls etc), and for a lot of users, these locations are also likely to have WiFi, MVNOs will be able to offload most of the traffic for which they would otherwise have had to pay the MNOs. This will drive down the costs for the MVNOs which are likely to pass those savings to the customers.
Using MVNOs, Google can scale up the use of call transition technology and WiFi without putting its own capital at risk.
We can safely assume that Google is better positioned to accomplish this task than Republic Wireless, FreedomPop etc. Ensuring seamless transition likely needs changes to WiFi standard to allow low latency transitions, among other problems that need to be solved for a seamless transition. Google is likely in a much better situation to push the changes needed than a small operator such as FreedomPop.
Once Google is able to perfect the network technology necessary to ensure seamless transitions, Google plans to share the technology with the mobile operators. Thus, all operators (MNOs and MVNOS) will have access to hundreds of MHz of bandwidth with just the current WiFi bands in 2.4GHz and 5GHz. Given that the heaviest current data use typically happens to be at locations where customers send most of their time (homes, offices,coffee shops, malls etc), and for a lot of users, these locations are also likely to have WiFi, MVNOs will be able to offload most of the traffic for which they would otherwise have had to pay the MNOs. This will drive down the costs for the MVNOs which are likely to pass those savings to the customers.
Using MVNOs, Google can scale up the use of call transition technology and WiFi without putting its own capital at risk.
More WiFi Bandwidth Could Weaken the Spectrum Advantage of MNOs
Current allowed bands (2.4GHz and 5GHz) have a total (shared) bandwidth that is comparable to the total spectrum holdings of all the top tier MNOs put together. Proposals under FCC consideration to include 3.6GHz and 4.9GHz bands will increase the available bandwidth for WiFi even more. Armed with WiFi transition technology, MVNOs can hope to stay in WiFi most of the time while ensuring quality of service while the customers are even less likely to encounter bandwidth issues in the future.
In this scenario, bandwidth becomes less of an asset to the MNOs and more of a commodity. (Like land, there is little new spectrum available - so, it can never really become a commodity, but, in urban areas with high WiFi coverage, it will be close to one.) MNVOs will have the opportunity to compete with the MNOs on more even terms and go up the value chain. This has the potential to increase the competition even more today and drive the prices and margins down further.
In this scenario, bandwidth becomes less of an asset to the MNOs and more of a commodity. (Like land, there is little new spectrum available - so, it can never really become a commodity, but, in urban areas with high WiFi coverage, it will be close to one.) MNVOs will have the opportunity to compete with the MNOs on more even terms and go up the value chain. This has the potential to increase the competition even more today and drive the prices and margins down further.
Project Loon Could Further Reduce MNOs' Leverage
Google has been experimenting with providing internet from hot air balloons aloft in the air. Using solar power and taking advantage of wind variations with altitude, Google has been able to keep its balloons up for 100 days continuously. These balloons are akin to mini-satellites that can provide WiFi/LTE coverage. One very good way to maximize the potential of Project Loon is to use free spectrum (such as WiFi or ISM bands) and high band spectrum (that is abundant at Sprint and DISH) to provide broadband internet service.
Till now, rural cellular coverage required low band (600, 700 and 800 MHz) spectrum because of the high density of cell towers necessary for high band spectrum. With Project Loon, coverage can be provided on demand using free/ high band spectrum. While the coverage still won't rival that of low band spectrum, the quality gap will certainly narrow. This again can lead to commoditization of spectrum.
Till now, rural cellular coverage required low band (600, 700 and 800 MHz) spectrum because of the high density of cell towers necessary for high band spectrum. With Project Loon, coverage can be provided on demand using free/ high band spectrum. While the coverage still won't rival that of low band spectrum, the quality gap will certainly narrow. This again can lead to commoditization of spectrum.
Other Benefits for Google
Are there other benefits for Google? The short answer is more information on mobile customers. With Project Fi, it will "own" the customer more than ever and understand even more of what they do - call details, apps used and usage details etc. When Google "shares" the call transition with the MVNOs/ MNOs, one has to assume that the obvious barter is for the operators to share the same information that Google now has access to with Project Fi. More customer information, better targeting of ads!
So, What Does This All Mean?
Google's ultimate goal with Project Fi is likely to drive the cost of mobile usage down, not running its own MVNO. Project Fi and Project Loon have the potential to strike at the very base of MNOs' value pyramid and commoditize spectrum, thereby, reducing the cost of mobile usage. The MNOs and regulatory bodies (like FCC) will be faced with choices that are very different from today. MNOs will be challenged to show differentiation in service more than ever before.
Regulatory bodies around the world will be more challenged than ever with balancing revenue goals and providing free spectrum for WiFi. Also, if the WiFi spectrum is meant to allow low cost internet service, should the MNOs be able to charge for unlicensed use of the spectrum for WiFi? If so, what's a reasonable amount?
