Google's 'Project Fi' MVNO won't shake up the wireless industry, but it could give it an important nudge

Phil Goldstein

Google's (NASDAQ: GOOG) unveiling of its "Project Fi" MVNO yesterday was expected, not surprising and somewhat underwhelming. I've expressed my skepticism about this proposition before, and now that we have the details I think it's safe to say that Project Fi will not be a "game changing" move in the wireless industry for a variety of reasons, including its pricing, scope and experimental nature.

However, it could eventually push the wireless industry in a new direction and spur carriers to provide faster service and introduce more consumer-friendly offerings, which I think would be a net positive for customers and the wider industry.

Let's start with the brass tacks of the Project Fi offering. For $20 per month plus taxes and fees, the service offers access to around 1 million U.S. Wi-Fi hotspots and unlimited domestic voice and texting, as well as unlimited international texting and low-cost international calling in more than 120 countries. Then, customers pay $10 per GB of data on top of that. Importantly, at the end of the month, Google will credit users for their unused data, so that users only pay for what they use.

Project Fi is marginally cheaper for individual users than what the Tier 1 carriers offer. However, when compared to family plans with shared data, Project Fi does not stack up so well. BTIG analyst Walter Piecyk notes in a blog post that for a family with three smartphone lines using 6 GB of shared data, Project Fi is only cheaper than AT&T's plan ($120 on Project Fi compared to $145 on AT&T). Piecyk found that plans from Verizon Wireless and Sprint at that tier are $5 cheaper than Project Fi, and T-Mobile US is $10 cheaper. 

Thus, as customers use more data, family plans from the traditional carriers are more economical than Project Fi.

There are also some questions about how Project Fi handles voice calls. "The 'seamless handover' [for voice calls] is promised when moving from Wi-Fi to LTE--but the Fi website doesn't mention LTE to Wi-Fi, nor Wi-Fi to 2G/3G," wrote Disruptive Analysis analyst Dean Bubley in a blog post. "Given that there's probably a timer so the phone doesn't annoyingly connect to Wi-Fi every time it gets a fleeting glimpse for a moment, I suspect that 4G-to-Wi-Fi isn't supported."

Yet the biggest drawback about Project Fi is that it only works on one device right now, the Google-designed Nexus 6, which costs $649. Customers with that phone also need to receive an invitation from Google to join. 

Presumably, Google has limited the service to one device for a few reasons. The most obvious is that Google needed to tinker with the phone's hardware and software to get it to dynamically switch between networks, and it can't do that for every phone. Google also likely wanted to limit the number of customers who can sign up so that its systems and customer service wouldn't be overwhelmed. And limiting the phone to one Android device lets Google have another chance to showcase its own mobile services and sell ads. However, limiting Project Fi to one expensive Android phone will clearly confine its addressable market. 

Google has not said if or when it will expand Project Fi to more devices.

So, Project Fi appears to be a service that is not that radical in terms of pricing and rather limited in availability. So what are the positives?

There are a couple, as far as I can tell. One is that Project Fi refunds unused data in the form of credit. Sprint MVNO Republic Wireless will soon introduce this concept, and if Project Fi gets a big enough following it could push other carriers to embrace the concept. I could definitely see T-Mobile doing it as another "uncarrier" move. According to the Wall Street Journal, a 2013 study by Validas, a company that analyzes wireless bills to help people choose which plans to buy, consumers on average waste $28 per month on data that goes unused. Anything that helps give consumers more of that money back each month is an unquestionably good thing.

Also, Project Fi can dynamically move among Wi-Fi, Sprint and T-Mobile, depending on which network is fastest. That's new to the U.S. market, and it hints at a future when customers are no longer locked into one carrier. Indeed, Apple (NASDAQ: AAPL) is also making tentative moves into this area by allowing new iPad buyers to select the service provider of their choice via the new Apple SIM.

Project Fi might also spur carriers--or at least Sprint and T-Mobile--to speed up their networks. Since the service automatically chooses the fastest network, and presumably the carriers will get wholesale revenue whenever customers are on their network on not their competitor, it incentivizes them to speed up their networks everywhere. Sprint already needed to do this with its 2.5 GHz TD-LTE network, but Project Fi could give it a kick in the pants.

Google's MVNO could also spur innovation in unlicensed network technologies, and maybe serve as a way to get other new entrants more market share, according to New Street Research analyst Jonathan Chaplin. "Google's investment in R&D, coupled with their ability to corral players and push the development of standards, will likely improve the user experience and accelerate the development of the ecosystem (particularly around unlicensed)," he wrote in a research note. "At the same time, we think Google's innovations are likely to lower the barriers to entry and arm new entrants. This would be bad for AT&T and Verizon, while improving the position of cable companies looking to enter wireless as well as other new entrants like Republic Wireless, FreedomPop, and Scratch (Google could become the Cable Labs for wireless challengers)."

Yet BTIG's Piecyk noted that "for a service as personal and important as your wireless phone, consumers may shy away from being a guinea pig for Google's latest project given the unsustained development or even availability of Google Reader, Glass and Voice, let alone the inability to use an iPhone, the choice of more than half the smartphone users in the United States." 

Project Fi is not going to shake up the U.S. wireless industry. It's too limited and experimental and does not offer enough compelling features to make masses of customers buy a Nexus 6 and switch over.

It will be a niche offering. But it could give U.S. carriers an important nudge.--Phil

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