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Summary:

SNL reports that Google is bidding on T-Mobile. If the rumor were somehow true, then Google is suffering from hubris. Selling software, services and handsets is fundamentally a different business than selling connectivity. Google buying T-Mobile would be a bigger disaster than AOL-Time Warner.

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SNL Kagan reported Monday that both Google and Dish Network have submitted bids to buy T-Mobile now that AT&T’s has ceased its overtures toward the country’s No. 4 operator. I’m not going to debate the veracity of these rumors here – SNL’s sources weren’t named — but I will say one thing: The idea of Google becoming a wireless carrier is absolutely ridiculous.

There’s no arguing that Google has big ambitions to expand further into the wireless space. Not only did it build an overnight sensation with Android, it’s exploring the cutting edge of handset technologies with its Nexus line and will broaden its device scope with the purchase of ailing Motorola Mobility. the search giant is one of the biggest players in mobile apps, and remains a looming presence on the mobile Web. So why wouldn’t it want to complete that dominance by controlling the pipes that the deliver its services?

There’s a big difference between delivering applications, services and devices and selling raw connectivity. Nowhere does this difference shine brighter than Google’s relationship with Verizon Wireless. Verizon benefits from the traffic that Android and Search deliver, and Google benefits from all of the Android devices that Verizon sells, but beyond that their common ground disappears, as the recent dust-up over Goggle Wallet shows. As an operator, Verizon has to carefully ration access to its network in the form of data caps and restrictions in order to make its profits. If Google were to buy T-Mobile it would be forced to do the same. As an apps and services innovator rationing bytes and bandwidth is the last thing Google wants to do.

But let’s play the hypothetical…

If Google did buy T-Mobile here are just three of many, many problems it would face:

  •  Schizophrenia: How does Google balance the needs of the services and devices it develops against the bandwidth constraints of the network it purchases? Video apps like YouTube and Hangout consume a massive amount of data, and Google’s developers, I’m sure, are hard at work building more powerful applications to take advantage of new 4G network speeds. Consumers will expect Google to use T-Mobile as a showcase for its newest technologies, but as T-Mobile’s lack of an LTE roadmap exemplifies, its network resources would be severely limited. Google would likely invest in alternate access technologies like Wi-Fi and white spaces to supplement its capacity cheaply, but at a certain point it runs into a wall erected by physics. The limitations of T-Mobile’s network would curb the pace of Google’s service innovation.
  • History BookA sense of history: If any company can attest to the fickle tastes of wireless consumers, it’s Google. It became a monster in the smartphone sector in the space of a few years, as Apple did before it. What happens when the tides shift? What if Windows Phone takes off like a rocket eating into Android’s market share. Does T-Mobile not sell Nokia or other WP phones? If Apple reduces itself to offering an iPhone for T-Mobile’s AWS bands, does Google ignore it? In the last decade, we’ve seen multiple titans in wireless devices and software fall, replaced by new giants, many of which have since also tumbled from their pedestals (just ask RIM, Ericsson and Motorola). What happens when Android’s star dims? Google can’t subject T-Mobile to the whims of its applications business, but if that’s the case, what would be the point of buying T-Mobile at all?
  • A customer relations nightmare: When was the last time you called Google customer service? The big-iron world of wireless base stations and towers, switching offices and utility trucks is radically different from the server-centric world of Internet services. There are lots of moving parts in wireless networks and they often fail, as Verizon can attest to given its recent string of LTE failures. When the iPhone first bum-rushed AT&T’s network, how much vitriol was directed at Apple for its un-ambitious choices in 3G technology and its decision to sacrifice RF design for industrial design? Not much. Whether it’s a justified perception or not, tech companies like Google are the darlings of the broadband age, while the operators are the evil gatekeepers preventing mobile data services from meeting their full potential. I think the carriers have come to terms with this perception as part of the course of doing business, but I don’t think Google is quite ready to deal with millions of tweets declaiming “f#@king Google’s network is down” whenever it has a problem.

What about Clearwire, 700 MHz and Google Fiber?

I’m anticipating some push back on this post, pointing out that Google has made numerous attempts in the past toward becoming an operator. Google invested $500 million and still remains a large investor in Clearwire. It entered the 2008 700 MHz spectrum auctions and bid heavily on the 4G spectrum Verizon eventually won. And Google has launched a fiber-to-the communities project designed to bring1 Gbps connections to the home.

These are all red herrings though. In every case, Google pursued these projects not with the intention to become a legitimate wireless or broadband provider. Rather, it used its enormous resources to upset the established order in telecom, thumbing its nose at operators in the process. Google invested in Clearwire because it wanted to prop up an alternative to the walled-garden data services that operators were then offering. It bid up that 700 MHz spectrum in order to force Verizon to accept open access provisions that would clear the way for its Android services in the future. And Google readily admits its fiber project is an experiment to show broadband providers and consumers just what’s possible with a lightening-fast connection.

Google doesn’t want to be a telecom service provider. It just wants to influence carriers to adopt business models and technologies more amenable to its business plans – either by shaming them by example or using its cash to force change. If it did buy T-Mobile, Google would join the carrier club and it certainly wouldn’t be able to pull such shenanigans anymore.

I don’t claim to be prescient here. SNL could very well be right, and Google may be making a legitimate bid for T-Mobile. If that’s the case then Google is suffering from hubris, somehow believing it could be ‘different’ then the rest of the wireless industry. But if Google does buy T-Mobile it may well wind up being a bigger disaster than AOL’s failed merger with Time Warner.

Book image courtesy of Flickr user crazytales562
Cash image courtesy of reserved Flickr user zzzack

  1. Kevin, have a little faith! While I think it’s unlikely that Google would buy T-Mobile, I think your reasons for them not to do it are wrong. I think the main reason they won’t do it (alone, anyway) is the price tag, but I don’t want to let your assertions impact their decision in any way, so I have to challenge them (it’s still lunch break for me).

    First of all, you say “There’s a big difference between delivering applications, services and devices and selling raw connectivity.” If only we were able to buy raw connectivity, there would be no reason for Google to entertain such an idea, but none of the carriers seem content to offer raw connectivity, they want to muck it up with their fantasies about selling content and related services and building a walled garden. I think the big motivation for Google and their competitors to buy T-Mo would be to make sure consumers have that raw connectivity option.

    And I don’t believe that Verizon or any other carrier has to ration access to their networks; so few people abuse it that it isn’t a factor; even when I have a fast link (wireless or wired), I rarely see instant page loading because of internet congestion or slow servers or bloatware running in the background on my phone or computer.

    Getting to your points:

    How does Google balance the needs of the services and devices it develops against the bandwidth constraints of the network it purchases?

    They have to deal with this regardless of whether they own T-Mo or not; they won’t base their content plans just on one carrier anyway, so it won’t impact what they do on the Google side at all. T-Mobile’s lack of LTE is not really a problem; outside of those who are tech savvy, most people don’t care if their phones support HSPA+ or LTE (if they did, the iphone wouldn’t be the raging success it is). The LTE issue is mostly a marketing problem, and one that T-Mobile has addressed fairly well. All wireless networks have the same limitation, and it isn’t raw speeds: only one device can be communicating at any given time on each channel. Wireless is a shared medium, and LTE does not make it switched.

    “A sense of history”? Google would operate T-Mo as a subsidiary, not an integrated division (at least I hope they would do that). The value of owning T-Mobile is not to sell more android devices, but to change the business model of the wireless industry, to one that is more open and consumer friendly. They tried to do this with the Nexus One, but that wasn’t a big enough platform; a carrier with 15% market share and the lowest priced (and best, in my opinion) service might be.

    “A customer relations nightmare”? Google isn’t about to get rid of T-Mobile’s support staff. I have been a customer of the four major carriers over the last several years, and T-Mo easily has the best phone support. I don’t think it’s safe to assume they would integrate T-Mo’s business into their existing company.

    You acknowledge these goals for google in your post, but you don’t seem think Google would act accordingly. Its investments in Clearwire, fiber in KC, and spectrum were not attempts to enter the wireless business, but rather to ensure a viable wireless infrastructure for the maximum number of consumers. I don’t think Google wants to be a service provider any more than it wants to sell phones and tablets, but it bought Motorola anyway. If its just a subsidiary, it’s just an strategic investment for them, a better place to store cash than in non-interest earning bank accounts or treasuries.

    I would be shocked if they did buy T-Mobile, and if they do, I hope they have partners so it’s better accepted by consumers (an Apple/Google/Microsoft consortium would be interesting). Then we might actually see real competition.

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    1. Kevin Fitchard Tuesday, January 10, 2012

      Hey Dan, you wrote almost as long as I did :)

      I admit to being a bit of curmudgeon, but I just don’t think becoming an operator is as easy as everyone makes it out to be. It comes with an awful lot of baggage and, in the case of Google, a lot of conflicts of interests that can’t be easily reconciled.

      I agree with you completely that Google’s goal is change the way wireless industry works, but I think it would have much better success continuing its current path — using its clout and cash to influence it from the outside — rather then joining the club. You’re right, they could accomplish that with an investment in T-Mobile, much easier than they could with an outright by. T-Mobile is such a big purchase Google couldn’t run it as an experimental network, but if they ran it as an independent business they’d wind up becoming exactly what they’re trying to change.

      You’re right, I don’t have much faith, but I also think the operators aren’t stupid. They run their businesses the way they do because they make money. They change those business models when they’re shown a way to make more money (or avoid losing it). Maybe it’s possible that a company to think they can swoop in and change that industry from the inside, but I think a Google has too much to take that risk, especially if it can accomplish the same from the outside.

      Keep the comments coming! This is good stuff.

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      1. Being an operator is not easy, but that’s not the issue. It’s not that they need to be managed differently, but they need more guidance from a board that has a different focus – one that believes customer satisfaction yields sustainable profits, rather than focusing on short term profits, and hoping customers are satisfied. Google can do that without running the show.

        T-Mobile is a profitable operation, but DT isn’t happy with the return on their investment. Maybe google would be happy with that return, as it would bring intangibles that are of little value to DT.

        I won’t say the operators are stupid, but they’re not geniuses, either. They are programmed, I mean trained, to believe the output of their work is profits, not communications service, so their decisions are skewed to maximizing profits in the short term. And regardless of what anyone says, that is not the job of the management – they are supposed to do what’s best for the company, not what drives the most short term compensation.

        I think Google has tried changing the industry from the outside, and it’s not working. They bid up the price on the wireless spectrum that VZ bought, so that VZ would be forced to open up the network, and they have not only not done that, but locked down the devices and services even more (locked bootloaders, no Google Wallet). The carriers still force bundling of equipment and service, which keeps prices for both artificially high. And both ATT and VZ are giving up on FTTH. If they get some real competition in wireless, maybe they’ll try to sell more fiber.

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      2. Kevin Fitchard Tuesday, January 10, 2012

        I’d actually argue the opposite, Ken. It’s Google’s coziness with Verizon that prevents it from taking a stand on the open access provisions it fought so hard to get attached to 700 MHz. Google’s efforts didn’t fail; it just failed to follow through.

        I see your point, but I think once Google becomes an operator its interests become aligned with the operators, not the other way around. I know I’m a skeptic, but that’s just me.

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      3. Kevin, one more last comment – I just read that the US Treasury sold $21 billion worth of 10-year notes at the lowest yield ever 1.9%. Since Google’s (and Apple’s) cash is earning next to nothing, they should take a chance and buy T-Mo. One thing that these companies have going for them is that DT is based in Germany, and US companies can use their accumulated foreign profits to pay for T-Mo, without taking a tax hit. That effectively lowers the price for them.

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    2. I so agreed, Yahoo started as the leader and Google proved to be a “better” company. Such is the “free Market Place” and Google’s track record leads one to believe only “GREAT” things would come out of Google owning T-Mobile! I for one wish it to be.

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  2. Mosaic Technology Tuesday, January 10, 2012

    I agree, Kevin. This really doesn’t seem like a move Google would make, nor does it seem like a good idea for it to make. I also agree about customer relations – I think generally speaking, people like Google as a company. I don’t know that many people who feel the same way about their cell providers.

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  3. Lester Walters Tuesday, January 10, 2012

    Uh, google is a carrier. Remember google voice?

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    1. I use Google voice all the time, while sometimes a lag is there, it is free on my phone. I now use less than 30 mins on my plan, by using my data plan, thank you Google Voice!

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  4. I doubt Google would buy T-Mo, I think T-Mo is too far behind the curve and catching up would prove too costly in time to Google as a result. I don’t think T-Mobile is the future of wireless. I think buying Clearwire would be a home run result. Buying Clearwire and financing a proper build out of a TD-LTE wholesale network would foster connection ubiquity. A wholesale network would do less to disturb the Android ecosystem (do you really think Verizon/ATT/Sprint would really like selling Android phones that benefit a wireless competitor). A wholesale network would help supplement the other wireless carriers.

    Google could use the Clearwire network as a CDN to support GoogleTV and to supplement Google Fiber. They could offer free Google Map devices that connect to the Clearwire service.

    The regulators would have a field day policing Google about tying products though.

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    1. Kevin Fitchard Tuesday, January 10, 2012

      Hi Brian,

      If that’s Google’s plan then it certainly has the opportunity. It’s already a big investor in Clearwire and since Clearwire keeps doing offerings to raise more capital, Google could easily up its stake. I’m not so sure if Google sees the advantage though. Clearwire has the spectrum, but it’s out of synch with the rest of the U.S. as far as technology goes.

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    2. Are you insane??? T-Mobile USA has some of the fastest internet speeds in the country AND the best nationwide coverage of those speeds. You think a near bankrupt company like Clearwire who has barely deployed their useless WiMax technology ANYWHERE is the future of wireless over T-Mobile? Boy, what are you smoking?

      Let’s also not forget, the first two Nexus devices released on T-Mobile first. So T-Mobile service is clearly not a problem for Google employees. In fact, Google employees at their recent music event were spotted using the international GSM HSPA+ Galaxy Nexus running on T-Mobile USA versus the Verizon LTE variant.

      But Clearwire? They’re better off starting a new company from scratch. They’re in debt! T-Mobile USA brings in net profits the way it operates.

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    3. Are you insane??? T-Mobile USA has some of the fastest internet speeds in the country AND the best nationwide coverage of those speeds. You think a near bankrupt company like Clearwire who has barely deployed their useless WiMax technology ANYWHERE is the future of wireless over T-Mobile? Boy, what are you smoking?

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  5. I would like to point out other avenues in an operator’s network that can alleviate bandwidth issues from the Core network. This has not been explored by ANY carrier and so is pretty much a very viable alternative EVEN if T-Tmobile does not have an LTE Option ( When it has, the hidden alternative becomes even more important from an asset standpoint)!!
    As Long as Carriers can find viable solutions ( Innovations) towards offloading data as close to access as possible, they have a great business model to offer unlimited services.. and Since IMHO Google is one of those companies which might have this expertise ( I m not workin for Google.. Yet).. There are Potentially breakthrough Innovation opportunities for this to happen!! All depends on the pricepoint and the willingness of disrupting the regular business model of a current Wireless oprator!! Nice to watch your Helsinki event..
    TC

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  6. if Google owned T-Mobile, then it could get paid for a piece of information, a datum if you will, when it shows the advertisement that accompanies it, paid again when people buy the Motorola device to gather the information and again for the T-Mobile network that transports the information. No matter how you look at it, getting paid three times for a single datum is better than only getting paid once.

    src eweek.com

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  7. i would not put it past google to do something incredibly crazy such as this:

    buy t-mobile than sell all the customers to other carriers. use the network to offer free service to purchasers of certain chromebooks and android tablets.

    if service was free the network would not have to be great at all it would just have to kind of work and people would come in droves. those people who need traditional voice services, guaranteed quality and/or customer support could pay the other carriers.

    also if they did not like the limited device selection could pay the other carriers.

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  8. SNL Saturday Night Live ?

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  9. US Government other wireless carriers would block such a deal, saying it would give google unfair competition.

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    1. Deal will no doubt be block due to monopoly.

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    2. People keep saying this, but I don’t see how. Why can’t a cell phone service company make it’s own hardware (Motorola) with it’s own software (android). In theory, carriers do this already, they brand their own name and lock hardware to only work on their network. Carriers indirectly are selling hardware as their own. If it was cost effective to manufacture their own, they would. It’s not so they license manufacturers to make hardware for them and brand it themselves.

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  10. You have a lot of things wrong in this article. First of all, LTE is over hyped. HSPA+42mbps gives the same performance to the CONSUMER (who matters!) that LTE does. LTE is a more efficient technology from a carrier perspective. T-Mobile USA has plenty of backhaul and it’s spectrum is underused. They won’t face a capacity crisis for years and that’s where LTE comes into play is managing capacity better. Even if they had the spectrum to deploy LTE now, what difference would it make to the consumer who’s been breezing along speedily on HSPA+ 42? It would be a complete waste. It’s sad but the majority of the industry has been brainwashed by Verizon Wireless marketing that they’re deluded from reality. Let’s also not forget T-Mobile’s HSPA+ 42 has better nationwide coverage than Verizon’s LTE.

    None of us really know what Google intends on doing, however I recalled something interesting from a while back: http://androidcommunity.com/google-goes-mvno-in-spain-with-sim-cards-for-workers-20110923/

    Google has ALREADY tread waters of being an MVNO operator in Spain. See the Google Sim Card? So it looks like they have no objection to being the operator. T-Mobile USA is known for it’s great customer service already, there’s no reason why they would replace any of the staff. Plus, a G-Mobile would be the boost to T-Mobile’s brand that it needs. Because that’s all that’s wrong with T-Mobile right now… a branding PERCEPTION problem.

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    1. Kevin Fitchard Monday, January 16, 2012

      Not to argue, but I should point out Verizon’s network is much faster than T-Mobile’s 42 Mbps network, both theoretically and in a real world speed tests (though VZW’s is much less loaded currently). MHz for MHz the two networks are equal, but LTE uses MIMO, which gives VZW some significant advantages. T-Mobile’s move to 84 Mbps HSPA+ is all about adding MIMO, which is when you can really start pitting one technology versus the other. Even then, though, those capacity advantages you referred to will make a big difference. HSPA+’s more fragile air link will mean much bigger differences in peak and edge speeds for T-Mobile customers. So while the theoretical ceilings of the networks will be the same, LTE will provide a much more consistent experience (higher speed connections more often) than HSPA+. If it were only about brute force peak speeds, then you’d be right no one would bother with LTE, but those capacity gains make all the difference in the world.

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