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Google's wireless credibility hurt by abandoning San Fran's WiFi effort

Google's credibility as a real and reliable wireless carrier has taken a big hit in that Tech Daily is reporting that a Google/Earthlink's "sweeping plan to blanket San Francisco with a high speed Internet network is officially dead."

With much fanfare Google has said it would bring free WiFi to San Francisco at an estimated cost of $15 million with partner Earthlink, which now is experiencing financial problems and layoffs.

The question is: if Google, is willing to stiff and disappoint sister city San Franciso on its high-profile free WiFi network, which is the home base of House Speaker Nancy Pelosi -- a big Google supporter, what confidence can the FCC place in Google's committment to bid $4.6 billion for 700 MHz spectrum?

  •  If Google won't spend $15m to help its neighbor San Francisco with its troubled WiFi effort, (which is less than Google co-founders have pledged as a prize for a private rover expedition of the moon), why should people believe Google will spend 300-600 times that amount to become a national wireless broadband provider?

Google has to be careful in Washington. After proverbially "breaking a lot china" in winning a sweetheart "open access" deal from the FCC in the 700 MHz auction, the FCC expects Google to participate and pay up for the spectrum that they said was so essential for competition, innovation and consumers.

  • Time will tell if Google is a real wireless player or a trash-talking, no-action wireless wannabe; and if people/partners/regulators can take Google at its word in the wireless world.

Frankly, I am deeply suspicious that Google has no real intention to bid $4.6 billion in the 700 MHz auction and spend the additional billions necessary to build and operate such a network.

Why am I suspicious?

  • Becoming a national wireless carrier would prompt a radical change in Google's business operations, regulatory status, financial status, profitability, and valuation.
    • Google's business operations: currently Google is a network core infrastructure play having built the largest parallel computing grid computer system in the world. That fixed cost infrastructure is highly capital efficient and profitable. Building an edge wireless network is the exact opposite, much less capital efficient and unprofitable for at least several years as a late new entrant.
    • Regulatory status: Why would Google want to become a regulated wireless company? The financial, political and valuation cost would be very large and painful -- for what?
    • Financial status: To become a wireless carrier will require buying spectrum and building/operating a national network. Google would probably create a capital budget and take on debt to do that size endeavor. Currently, Google has no debt to speak of and a huge cash position. Taking on debt, or using cash to pay upfront for such a risky network would significantly weaken Google's current robust financial position.
    • Profitability: Getting into wireless as a carrier is almost all cost and little revenue for many years for Google. Becoming a wireless carrier means Google's margins come down substantially.
    • Valuation: Becoming a wireless carrier would lower Google's stock market valuation because it would hit Google with compression of its valuation multiple as many investors would look at the company as a hybrid play, a less profitable play going forward, and a company committing to new big cap ex spending that has a riskly long term payback.

 

Bottomline: Google would become a much less valuable company if it became a national wireless carrier.

 

 

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