There was news this week that Google is looking to become a mobile virtual network operator (MVNO) in the US market. Amir Efrati from ‘The Information‘ reported that ‘Google is preparing to sell mobile phone plans directly to customers and manage their calls and mobile data over a cellular network… the new service is expected to run on Sprint and T-Mobile’s networks…a launch this year seems likely’. This news was also picked up by the Wall Street Journal that puts further support behind the rumour. In this post I explore what a Google MVNO in Australia could mean for MNOs (Mobile network operators) and MVNOs and Google.
What does this mean for Australian MNOs and MVNOs?:
Classic MVNO strategy is about doing deals with MNOs to address segments in the market that the MNOs cannot reach themselves due to factors like brand, distribution or price. In other words MNOs don’t do deals with MVNOs to kill their own profitable businesses, instead they look to extend their competitive advantage due to owning and leveraging the physical network infrastructure. In Australia there are 4 MNOs (Telstra, Voda, Optus and Voda/Hutch) which provide network coverage to a host smaller of MVNOs. Google entering the Australian market as an MVNO would require a deal to be created with one of the four Australian MNOs all of which have large mobile plan businesses which a Google MVNO could potentially threaten.
What we can learn from Google’s reported MVNO play in the US market however is that it is working on deals with Sprint and T-Mobile which are the smallest of the four national carriers (Verizon and AT&T are the others) in terms of subscribers and network reach. A deal with the smallest of the MNOs could be momentous in an industry that relies on significant fixed cost (capital) to be spread across a large subscriber base to turn capital expenditure into free cash flow to then build out networks (size and quality) further. Creating a deal with these smaller MNOs and driving subscriber take up could change the market from 2 major players to 3.
Applied to the Australian context a similar opportunity could exist with the smaller MNOs (Voda or Optus) which would afford them the ability to grow in their subscriber base and therefore network size and quality and earn better returns on their capital investment. A deal with a cashed-up Google is not unrealistic and would have a similar effect of changing the competitive dynamics from 3 major network brands to 2.
What does this mean for Google?:
As an MVNO, Google would be offering new mobile phone plans to customers. Depending on the terms of the deal, Google could offer cheap plans for Nexus, Android and Google cloud subscribers giving way to a suite of Google vertical integration. At its most basic level, this will allow more people to use the Web and Google can show them more advertisements, in line with their core business model. An aggressive approach could allow Google to become even more targeted using network data or ‘browser cookies’ to learn which sites users frequent thus extracting a higher price from its advertising model which could more than offset cheaper plans.
Being an MVNO has some downside for Google in that it would need to develop marketing, distribution and customer service capabilities which are not necessarily in its sweet spot.
Whilst this news out of the US market is exciting and potentially disruptive in the Australian context, a Google MVNO in Australia may be some time off yet. In fact, we may have Google Fibre in Australia before a Google MVNO.