The average American mobile phone bill amounts to well over $1,000 a year. That’s more than home Internet and basic cable combined.
It doesn’t have to be that way, and your wireless company knows it. Startups like FreedomPop know it, too. Now, it seems, so does Google.
A Google executive confirmed this week that the company plans to announce a wireless service of its own in the coming months. The goal: “to drive a set of innovations which we think the system should adopt.”
Google isn’t going to take on Verizon and AT&T directly by building its own nationwide cellular network. Instead, it will partner with their smaller rivals, Sprint and T-Mobile, to show the industry leaders what it thinks the wireless plans of the future should look like. But that doesn’t mean, as some have mistakenly inferred, that it poses no threat to them. On the contrary, Google’s entry into the sector could upset the prevailing pricing model entirely.
Google isn’t talking details yet, but it isn’t hard to imagine what the Internet giant has in mind. What it has in mind, according to industry rumors and sources, is something like what FreedomPop and Republic Wireless are already offering: a “Wi-Fi first” service that could deliver adequate, if slightly spotty, coverage at a fraction of the prevailing cost. And that coverage is likely to get much better over time.
To understand how that will work, you have to look first at what’s wrong with the typical smartphone plan today.
Shop around a bit and you’ll see that the major wireless carriers expect you to pay for infinite voice calls and text messages at a minimum, with monthly charges escalating based on how much cellular data you want on top of that. A typical Verizon family plan gives you 8 gigabytes of cellular data shared by four lines, plus unlimited talk and text, for $145 a month. A single line with just 2 gigabytes of data, plus unlimited talk and text, is $75 a month. Strip it down to a single gigabyte of data, plus unlimited talk and text, and the charge is still a healthy $60 a month. Sign up for a contract and you’ll get a subsidy on a new phone, but you’ll quickly make up the difference on your monthly bill.
What each plan has in common is the unlimited talk and text, which sounds like a really cool deal until you realize how much you’re forking over for it. The going rate for a gigabyte of data on the major carriers is $15 a month, which implies that a large portion of your monthly bill is going toward talk and text alone. Again, you don’t have a choice about it.
That might have made sense five years ago, when making calls and sending messages were phones’ primary function. Today, we spend far more time on email, the Internet, and apps. Most people could probably do without talk and text more easily than they could do without data. You can make your calls over data using services like Skype or FaceTime. And you can send your messages over data via apps like iMessage, WhatsApp, Facebook Messenger, and countless others.
So why don’t the carriers give you that option? It’s simple, says Steven Sesar, chief operating officer of FreedomPop. The networks to support voice and text services are already built and paid for, so that’s where the carriers reap a lot of their profits. Meanwhile, high-speed data requires costly new LTE infrastructure, so that’s what they restrict.
The insight that birthed FreedomPop was that cellular data may be costly, but Wi-Fi is vanishingly cheap. Meanwhile, the rise of “over-the-top” calling and messaging apps that send data over the Internet means you can do without the carriers’ voice services altogether.
FreedomPop’s base package gives you 500 megabytes of data, 500 text messages, and 200 voice minutes every month, and routes you through Wi-Fi rather than cellular networks wherever they’re available. The cost: $0. Seriously, it’s free. The company makes its money only when customers buy more data or upgrade to unlimited talk and text, which costs about $10 a month. FreedomPop’s patchwork network of Wi-Fi hotspots is the default for both calls and data. It buys cellular data wholesale from Sprint and lets you use that for no extra charge whenever Wi-Fi is unavailable.
Another startup called Republic Wireless offers a similar service at similar prices. And in January, the cable company Cablevision announced its own Wi-Fi-first phone service, starting at $10 a month for its cable customers and $30 a month for everyone else.
Google, says FreedomPop’s Sesar, has a similar service in mind. But there is one big difference, he allows: FreedomPop and its rivals are tiny, and Google is huge.
A lot of the key pieces are already in place for a Google wireless network. For starters, there’s its Android operating system, which it can easily tweak to make Wi-Fi the default for calls and text as well as data. Ditto its Nexus phones. Then there are its Google Voice and Google Hangouts apps, which are established offerings for Internet-based calling and messaging. Finally, there is its Google Fiber high-speed Internet network, which is already up and running in several U.S. cities and could easily be used to power a corresponding Wi-Fi network. Meanwhile, it’s finding surprising success with its experiment in beaming mobile data to rural areas via solar-powered balloons.
The bare-bones, Wi-Fi-first approach has its limitations. While I was talking to Sesar on Monday, his phone cut out. He called back on a different line and sheepishly explained he had run out of minutes on his FreedomPop plan. The call quality was also noticeably choppier than what you’d get through a top-flight cellular voice connection. Sesar said that will change eventually. “If you remember when Skype came out, you’d get a dropped call every now and then. But it’s free, so you can tolerate that.”
Mobile data today, he believes, is comparable to fixed-line Internet service 15 years ago. Back then, it was hard to imagine people cutting the cords to their home phone lines. Now it’s commonplace. And, unless the wireless carriers adapt, Sesar expects cheap, Wi-Fi-first phone service to disrupt their business models in the same way. In five or 10 years, he predicts, high-end business customers will still demand the sort of top-flight voice service that Verizon promises—but the average smartphone owner won’t.
Google Fiber is one obvious clue to what Google is doing with its wireless service. Even as a pilot project, it is already forcing the big Internet providers to improve their service and cut prices. On Monday, Google senior vice president Sundar Pichai drew an analogy between the company’s wireless project and its Nexus phones, which serve as a showcase for its Android technology. To me, though, the most apt comparison for Google’s wireless service is the Chromebook. By forgoing expensive features like a big hard drive and accessory ports and running most applications over the Web, Google built a laptop that delivers passable performance at a very low price.
For FreedomPop, watching Google enter the space the startup helped to pioneer is bittersweet, Sesar told me. “In the short term, it’s a massive validation of what we’re doing. This is absolutely the future.” And in the long term? “In the long term, I’ll be honest with you, it’s hard to say that having Google in your space is a good thing.”