Google to Sell Wireless Service in Deals With Sprint, T-Mobile

As reported by the Wall Street Journal: Google Inc. is preparing to sell wireless service directly to consumers after striking deals with Sprint Corp. and T-Mobile US Inc., a move likely to prod the wireless industry to cut prices and improve speeds, according to people familiar with the matter.

It isn’t clear how widely the Internet search giant plans to offer wireless service, how much it will cost or when it will go on sale. Google might start small by limiting the new service to certain U.S. cities or to users of its Google Fiber broadband Internet service.

The move is one of the strongest signals yet that Google, based in Mountain View, Calif., is stretching its ambitions far beyond YouTube videos and the Gmail email service. Google executives also want the company to have a major role in how those services are delivered to consumers.

Sprint, of Overland Park, Kan., is the third-largest wireless carrier, while T-Mobile, of Bellevue, Wash., ranks fourth. Under separate agreements with each carrier, Google will resell service on the Sprint and T-Mobile networks, according to people familiar with the plans. Such wholesale agreements are common, essentially allowing sellers such as Google to pitch wireless service under their own brand names.

Google’s entry into the mobile-phone business would create a new headache for an industry already struggling with a price war and soaring costs for wireless spectrum. Sprint executives are betting that the boost from an influx of new Google customers outweighs the risk that the Internet search giant will learn too much about the ins and outs of the wireless business.

Still, Sprint is hedging its bet by putting a volume trigger into the contract that would allow the deal to be renegotiated if Google’s customer base swells, said one person familiar with the matter.

Google executives first approached Sprint more than 18 months ago about a potential resale deal, known as a mobile virtual network operator agreement, or MVNO. MVNO agreements are a standard, high-margin business for carriers, which get to sell excess capacity on their networks and gain customers without having to bear the costs of marketing to them or signing them up.

The decision to sign an MVNO agreement with Google wasn’t a normal deal, however. Google’s reputation as a potential disruptive force worried executives that Sprint might be letting a rival into the gates, according to people familiar with the matter. The decision went all the way up to Sprint’s chief executive at the time, Dan Hesse, and the company’s chairman, SoftBank Corp. chief Masayoshi Son .

The arrangements with Sprint and T-Mobile would give Google a way to offer wireless service without taking on the daunting, expensive burden of building and maintaining a network. Google still would have to wrestle with the tasks of customer service and billing that it has generally avoided by offering its advertising-supported services free.

A number of other companies already operate as virtual wireless carriers. Most are small, but Tracfone Wireless, a unit of Mexican carrier America Movil, has grown into the fifth-largest wireless carrier in the U.S. by offering cheap service carried on other companies’ networks.

Google already has a strong position in wireless through its Android software, which powers more than half of the smartphones sold in the U.S., and the Google-branded Nexus phone, made by a variety of manufacturers. Carrier support helps Google sell those products, and the company will have to be careful not to upset those relationships as it moves into wireless service.

Google’s plans were reported earlier by The Information, a publication covering technology industry news.

Google officials have been working on the wireless project, led by company veteran Nick Fox, for more than a year, one of the people said. The preparations are part of a broader effort to increase Internet coverage. As more people get better and cheaper access to the Internet, Google benefits because they are more likely to conduct searches, stream YouTube videos, send emails through Gmail or text using an Android smartphone.

Separately, Google has been lobbying the Federal Communications Commission to free up vast amounts of low-quality wireless spectrum that could be used to provide cheaper wireless access. The airwaves aren’t much use to wireless carriers, because the airwaves can’t transport wireless signals across long distances.

But they could be useful in cities and handle a lot of the traffic that now gets carried and billed by big companies like Verizon Communications Inc. and AT&T Inc.

Google hinted at its wireless ambitions in a letter to the FCC last week, which said higher-frequency spectrum might be used for “the next generation of unlicensed broadband services,” including complements to Wi-Fi networks, “or entirely new technologies and innovations.”

“We are helping to make Internet bandwidth more abundant,” Google executives told an FCC commissioner during a September meeting in Mountain View, Calif., according to an FCC filing. “The broadband ecosystem will be well-served by a policy environment that removes barriers to investment, discourages monetization of scarcity, and empowers consumers.”

That spectrum could figure into a Google wireless offering, which could give priority to cheap or free Wi-Fi networks, one of the people said. Under that model, calls and data would be routed over Wi-Fi networks if available and fall back to the cellular network only when Wi-Fi is out of reach.

“It’s probably an attempt to put pressure the carriers to improve their own products by showing new ways of offering service,” said Jan Dawson, an analyst at Jackdaw Research. “When Google enters existing markets it tries to do things differently, rather than just doing something slightly better or cheaper.”