How Google or Apple Could Create a Major New Mobile Carrier

This article originally appeared in the May 2012 issue of Next Gen Mobility magazine.

An open Internet is critical for companies like Google (News - Alert), Apple or Amazon and, while they may not want to become competing mobile carriers themselves, there is a way they could foster disruption that enables open access.

Globally, most mobile markets are tight oligopolies at best. Limited mobile spectrum favors a few market-leading companies with large resources. Such a company can spend $2 billion on a license that will only produce $1 billion in value, if they believe they’ll make another $1 billion or more by blocking rivals. This is one reason the U.S. has gone from seven or eight players per major market to four and may be heading toward duopoly – just Verizon and AT&T – as Sprint (News - Alert), T-Mobile and Clearwire totter.

However, fighting over mobile spectrum misses a key opportunity. Yes, wireless data will exceed fixed, eventually, but the projected 2015 breakdown is 46 percent wired, 46 percent Wi-Fi and just 8 percent mobile. Already, more than 40 percent of smartphone data bytes and 90 percent of tablet data goes via Wi-Fi. Wi-Fi is the key to reshaping this market.

Increasingly, smartphones come with both mobile and Wi-Fi connectivity. When you track individuals’ mobile phone usage, it’s overwhelmingly from just two cells – the ones near home and work. But home and work are likely to have Wi-Fi. What’s more, that Wi-Fi equipment was bought and installed by individuals or corporations, and its spectrum is free. If you could harness these Wi-Fi resources, you’d only need traditional mobile coverage to support people in motion and backfill isolated locations.

Suppose a major national brand (like Google?) made you an offer you couldn’t refuse for access to the unused capacity on your Wi-Fi setup? Assume they guarantee you absolute priority on your own gear; enable encryption and firewalling so you are more secure than you’ve ever been; and give you free reciprocal access at places you frequent. Interesting? What other incentives could a major brand like Google or Apple offer?

Suppose their network also includes deals with Boingo, iPass (News - Alert) and other Wi-Fi aggregators? Finally, suppose they offer software that seamlessly connects your device to any affiliated Wi-Fi access point? That’s technically straightforward and even better if built into an operating system like Apple’s iOS or Google’s Android.

Of course an 80 percent or 90 percent coverage solution wouldn’t be competitive with the 99 percent coverage of a leading mobile carrier but, with an almost free 80 percent or 90 percent solution, one could afford to buy backup coverage from Sprint, T-Mobile or Clearwire. Now it becomes a matter of incentives, coverage and pricing. How do you drive traffic to the Wi-Fi network, at least during busy periods? (Nights and weekends are already free when purchased at wholesale).

This potential Wi-Fi network is dramatically different from a costly, centrally designed LTE network, so mobile network experience may be a disadvantage. To facilitate the aggregation of millions of Wi-Fi devices owned and managed by individuals and corporations, experience with consumer devices and cloud-based software services would be more important.

While creating the incentives to make this work is non-trivial, there would be none of the large capital outlays for an LTE network. There might even be equipment revenue from reselling pre-configured Wi-Fi devices. So cost is not a major barrier.

Wouldn’t a mobile network be a distraction for Google or Apple? Yes, but they can’t afford to ignore open wireless access. Smartphones and tablets are the future. Historically, mobile operators have dictated to handset vendors what services can work on which devices. Even after the iPhone (News - Alert), operators dictate to most handset vendors and block Apple from over-the-top voice. Worse, mobile operators have used their political clout to get exempted from net neutrality. Neither Google, Apple or Amazon can afford to cede control of their destiny to Verizon (News - Alert) and AT&T. Something has to change.

Traditional mobile isn’t going away, but the explosion in 4G data services is increasingly dependant on Wi-Fi, and Wi-Fi is completely unlike a mobile network – different economics, different organization, different control. Whether done directly by a Google, Apple or Amazon, or through investments in other players, there’s a clear need and a clear opportunity for leading Internet companies to disrupt the mobile operators.