It's a long shot, but I woke up this morning contemplating whether Google, in the long term, will continue to pay Sprint and T-Mobile to run data and voice over their respective networks or simply dig deep into their coffers and buy one of the companies. Here's why.
On Wednesday, Google launched Project Fi, a program to provide WiFi and cellular service to Nexus phone users, the device nearly as big as a tablet. The $20-per-month charge for voice, SMS, WiFi tethering and international roaming in more than 120 countries will be a first for the industry. The company partnered with Sprint and T-Mobile, allowing customers to pay only for the data they use.
Think of the control Google would have in terms of online advertising, especially search ads, running on a Google-branded carrier network.
While it's pure speculation on my part, successful tests using the Nexus could spur Google to either acquire T-Mobile or Sprint or become a majority stakeholder in one or the other. The move would provide an opportunity to spin off its hardware and fiber business. The stakeholder scenario would mean that one or the other would need cash to build out its wireless network or make other improvements.
This focus is not new for Google. In 2008, reports suggest that when the Federal Communication Commission's (FCC) 700MHz became open for bids, wireless spectrum auction results show Google submitted a bid of $4.7 billion for the c-block, which triggered open access by surpassing the $4.6 billion reserve price. Then they stopped bidding. The 700MHz wireless spectrum, formerly used by UHF television signals, can run long-range broadband data transmission, per one report.
Macquarie Securities Analyst Ben Schachter speculated in March about Google's forthcoming deal with carriers to become a mobile virtual network operator to support Nexus hardware or Google Fiber.
The Wall Street Journalreminds us that in 2011, AT&T and T-Mobile USA dropped a planned $39 billion merger after the Justice Department filed an antitrust lawsuit to block the deal. Since then T-Mobile has begged Americans to sign up for its services, which surprisingly has worked to build a stronger balance sheet.
T-Mobile's "strong" Q4 2014 earnings results show the company's potential long-term growth, notes Tomonori Deguchi, as the company was the only major U.S. wireless carrier with expanding sequential adjusted EBITDA margins in the quarter. He points to the company's "innovative service plans, additional spectrum potential, and Mobile Virtual Network Operators (MVNOs), we believe TMUS has more than 15% upside potential."
If not T-Mobile, than perhaps Google would acquire or Sprint? In a research note published Monday, Citigroup reduced earnings estimates for Sprint, published in a research note, while stating a Neutral stock rating with a target price of $5.