Google Inc (NASDAQ:GOOGL) has recently unfolded its plan to venture into the wireless business. Gene Munster, Senior Research Analyst at PiperJaffray was on CNBC to discuss how Google Inc (NASDAQ:GOOGL)’s new adventure could give sleepless nights to major wireless carriers such as Verizon Communications Inc. (NYSE:VZ) and AT&T Inc. (NYSE:T). Whereas Google Inc (NASDAQ:GOOGL)’s officials have declined that Google is looking to compete with established wireless carriers, some people are digging into what could then be the real reason for Google to enter the wireless market.
“The stated motivation is to create a small network that will allow them to test innovation around mobile and android and not to compete with Verizon and AT&T but probably the real motive is to be a stalking horse to basically encourage or twist the arm of the existing carriers to offer cheaper data because when you use more data – like YouTube on your mobile phone or any sort of internet – Google benefits,” Munster said.
Google’s step is definitely going to help them generate more advertising revenue as cheaper data plans mean consumers will stay online for longer times. When Google starts offering consumers really cheap wireless internet, Munster believes that can force other carriers such as Verizon and AT&T to lower the cost of their data plans and offer consumers more unlimited data.
Consumers will welcome such incentives but this news is great news for Google’s shareholders too. According to Munster, after the licensing and marketing expenses – that may have a minor impact during the first couple of quarters – investors will surely notice an upside in the company’s profit margins. This is something that will make and keep investors happy in the long term.
“From a shareholder perspective this makes a ton of sense and the reason is that more data usage is good for Google. About half of the advertising spending online is done through Google. […] When people spend time online, Google tends to benefit. As an investor in Google – if they encourage more internet usage – that clearly benefits their business. […]. There is one small negative wild card – if they do want to promote this service there is going to be some expenses associated with it. […] But in longer terms it is a much bigger positive,” Munster said.
Google will be launching this service in a few months from now but as Munster said, existing wireless carriers like Verizon Communications Inc. (NYSE:VZ) and AT&T Inc. (NYSE:T) should already start re-pricing their data packages to prevent their consumers from deserting.
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