08 May 2015

Hi-Fi Networks at Reasonable Prices

Google's Project Fi will bring much needed competition to the U.S. wireless broadband market and accelerate the convergence between fixed and mobile broadband service.

On April 22, Google unveiled Project Fi, its attempt to change the wireless industry for the better. Essentially, when a Google user signs up for the Project Fi wireless service, that user will get access to a “network of networks” on which he can use his mobile device (currently, only the Nexus 6 is allowed) and tethered devices.

According to Google, Project Fi is focused on three key areas:

  1. Helping users get the highest-quality wireless broadband connection

  2. Enabling easy communication across networks and devices

  3. Making the service experience as simple as possible

While Google is partnering with “leading” wireless carriers (in the U.S., Sprint and T-Mobile) and hardware makers to make this happen, one of the ultimate goals of Project Fi is to “get technology out of the way” so that you “can communicate through whichever network type and device you’re using.”

This is a big deal.

When you boil it down to its essence, modern wireless service is all about getting adequate access to the communications networks – and the Internet, in particular – in the easiest possible way. Consumers don’t really care about what technology/infrastructure is being used to connect to the Internet. What they care about is ubiquitous connectivity, high throughput, low latency, and mobility.

Consumers sign up with traditional wireless providers because they offer a last mile connection that can reliably be used pretty much anywhere with certain mobile devices. This combo of network + mobile device has become one of the most useful tools to emerge in the new century. In fact, it could very well be the most useful – and transformative – tool we’ve seen in a very long time, which is borne out by numbers indicating that the mobile device is one of the most quickly adopted technologies by the mainstream in history. As Marc Andreessen, the well-known venture capitalist recently asked:

The importance of securing a reliable wireless connection has resulted in postpaid wireless service becoming the norm in the U.S., with Verizon and AT&T having been the main beneficiaries of this trend. Indeed, Verizon and AT&T dominate the data service component of the mobile device + network combo – they are practically the only game in town, despite recent inroads made by Sprint and T-Mobile.

Consequently, the big two wireless carriers have had little incentive to provide service at the same cost and fidelity as that of infrastructure providers in other countries. In fact, U.S. mobile broadband service is terrible relative to that in other countries, despite the big two making boatloads of money on an annual basis.

The fundamental problem with wireless service in the U.S. is this: technological and market realities have resulted in a winner-take-all situation, where each US consumer is forced to rely on one service provider for all his mobile data needs in an effective market of two providers. What we need in the U.S. is real competition.

And that’s why Project Fi is so important.

Because Project Fi theoretically removes the technological impediments to utilizing multiple providers’ networks, it incentivizes partnerships by the also-ran wireless carriers (which Google actually calls leading carriers) and current and prospective Wi-Fi providers. This means increased competition for the big two, which will lower the cost, and increase the quality, of mobile broadband connections.

The importance of consumers being able to hop on and off different networks seamlessly, and in an automated fashion, cannot be overstated, especially when a substantial volume of data traffic could potentially go over free Wi-Fi hotspots. In a Project Fi world, metering is the norm – after a base fee for network access and a minimum amount of data usage, users pay per GB used on the “pay networks,” i.e., the high-cost cellular networks. If a user only uses the minimum amount of data on the “pay networks,” but uses a substantial amount of data on the “free networks,” i.e., the low-cost Wi-Fi hotspots, he still only pays the base rate per month.

But what’s critical about Project Fi is that the program automates network switching in a way that drives mobile Internet traffic to the highest quality wireless connections at any given time – whether those connections are provided by wireless carriers or Wi-Fi broadband providers. A fundamental design choice has been made by Google and its partners that assumes that consumers aren’t so perturbed by the price of mobile broadband service as much as the quality of service.

Google and its Project Fi partners are right. Consumers in the U.S. are already willing to pay exorbitant prices for terrible mobile data service. Paying reasonable prices for high quality service would be a godsend for most consumers, given the importance of the mobile device + network combo.

And that’s why it is very likely that Project Fi catalyzes a number of new partnerships and/or frenemy relationships between the also-ran wireless carriers and Wi-Fi broadband service providers. While being able to hop on and off free and open Wi-Fi networks is great, ubiquitous connectivity that makes the best use of low-cost Wi-Fi hotspots will likely require the involvement of providers who want to sell their services.

These providers could include existing Wi-Fi first mobile virtual network operators (MVNOs) like Republic Wireless, who already use wholesale services from cellular carriers like Sprint to fill in the gaps in their service.

Big Cable has already spent billions of dollars building out their own Wi-Fi networks and setting up roaming agreements. Presumably, they would be willing to partner with cellular carriers who are not competing with them with respect to multichannel video offerings. John Legere, the precocious CEO of T-Mobile, indicated as much on the company’s last conference call, even implying that consolidation might occur where T-Mobile could merge with a cable company.

Nationwide retail establishments that have rolled out, or plan to roll out, Wi-Fi across their stores could also be potential partners. Starbucks, for example, announced in 2013 that it was partnering with Google to bring much faster, unlimited data Wi-Fi to its stores. Those hotspots could easily become access points for the Project Fi service or for other Project Fi-type services.

The bottom line is that there are a number of players who would be more than willing to offer up high quality Wi-Fi broadband connections in conjunction with cellular service, so long as they are getting paid for the traffic that travels through their hotspots. And entrance of these new players into the wireless market will mean real competition for the big two wireless carriers, which should greatly increase the quality of service.

But perhaps the most beneficial side effect of Project Fi might be its acceleration of the convergence of fixed and mobile broadband service. Project Fi wireless connections are not relegated to the mobile phone – tethering is built into the program in a way that is very intuitive and consumer friendly. Increased use of tethering will almost certainly make consumers more accustomed to thinking of their personal data plans as applicable to all of their devices.

If that change in thinking occurs, then US consumers are going to start wondering why they are paying two bills for their Internet service, especially if the quality of wireless service becomes just as reliable and high quality as the fixed broadband service that they get in their homes. And as fiber overbuilding and the introduction of ultra high speed wireless service occurs, that last mile at the home will be served by the very same players competing in the wireless space, instead of just the standard two (cable and DSL). Here is John Legere:

[I]n, you know, five years we will think it comical that we thought about the industry structure as the four major wireless carriers . . . [A]s content and entertainment and social are moving to the Internet and the Internet is moving mobile, these industries – the adjacent industries – are in the same game that we’re in. So whether it’s, you know, what you see Google doing, what you see the social media companies are doing, or as you start to see cable players trying to move content, Wi-Fi integration with mobile networks, etc. – these are individual customers that are looking at both offer sets. So I think you need to think about the cable industry and players like us as not competitors but potential partners and alternatives for each other in the future.

– John Legere, T-Mobile Q1’15 Conference Call (Apr. 28, 2014)

The only disagreement here is that we could very well see the industry structure changing in a shorter time than five years, with the last mile duopoly positions both in home and mobile finally breaking down so that there is real competition for customer wallet share.

And hopefully Project Fi will have something to do with that.