Can Google's Project Fi take off with only one phone?

In a potentially disruptive and possibly precedent-setting move, Google has taken the vertical integration of its telecom businesses to the next level by actually becoming a mobile virtual network operator (MVNO), which will offer cellphone voice and data services to its Nexus-branded phone — a phone that naturally runs Android, its wildly popular mobile platform.

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I dub the so-called Project Fi potentially disruptive because of the nature of both the technical aspect of the service as well as the plans being offered to consumers.

Google the middleman

As an MVNO, Google does not actually own the elements of the network infrastructure (as it does with its Google Fiber broadband initiative), but like other virtual providers, leases bandwidth from the larger, post-paid carriers. What's unique to Project Fi is the employment of two operators' towers (Sprint and T-Mobile) as a de facto mega-network, with compatible handsets able to seamlessly hop between them — along with open Wi-Fi networks — as signal strength dictates.

And therein lies the rub, a duality in which the service's greatest strength is also its greatest weakness. Because of its rather unique capabilities, 

Fi also requires equally unique hardware to perform its neat network-switching trick

Fi also requires equally unique hardware to perform its neat network-switching trick. Specifically, devices must be capable of supporting both Sprint's and T-Mobile's different LTE bands for data, as well as T-Mobile's GSM network and Sprint's CDMA network, for voice calls and 3G data.

Right now, there is only a single smartphone, and no tablets, on the market which meets the stringent criteria — and unsurprisingly, it's the Nexus 6, co-developed by Google and Motorola to operate on any of the four major U.S. carriers in a single hardware configuration.

Even worse, it's unlikely that we'll see this "portfolio" grow substantially, except through the yearly refreshes of the Nexus line. Because of that CDMA radio requirement, manufacturers of compatible phones would need to pay a licensing fee to patent-holder Qualcomm, increasing their costs to play ball in what, for now, looks to be a niche league.

Challenging the status quo

While it seems likely that Google is exerting a bit of pressure on its OEM Android partners to push out Fi-friendly SKUs of their hardware, it's just as likely that it will see some pushback, unless subscriber interest makes such assembly-line retooling a profitable endeavor. Unfortunately this is a chicken-or-egg scenario, in which growth requires a larger handset selection, and with manufacturers reticent to make those handsets in the absence of demand.

The other potentially transformative aspect of Fi is its pricing model: On the surface, at least, it appears to be much cheaper than traditional plans from the four majors and even those of many prepaid operators and fellow MVNOs. The base price for unlimited talk and texting is just $20 (with perks like visual voicemail and Wi-Fi tethering thrown in gratis), while data costs a flat $10 per gigabyte.

Best of all, users receive credit for unused data each month, and overages are pro-rated at the same $10 per GB. In an industry that has grown fat on regularly charging customers for unused or unanticipated data, Fi delivers a laudable show of fairness.

What price freedom?

However, these numbers only tell part of the story. For one thing, unlike some operators — excluding the majors — taxes (which can range from 10% to 20% of monthly bills, depending on state of residence) are not included in the price of the service. Secondly, there's no subsidy on that Nexus 6, though Google does offer interest-free, 24-month financing in an effort to open its tent to as many consumers as possible.

Nonetheless, the $649 or $699 handset (depending on storage capacity) ends up adding almost $30 per month to one's bill, making them look a lot closer to traditional post-paid statements — which isn't surprising, since the major carriers tend to bury those initial equipment subsidies into the cost of service over the lifetime of the contract.

Now, customers do of course have the option of bringing their own unlocked Nexus 6 units to the table, but unless they were purchased at some point for full price anyway, they are likely coming from a broken contract that will be subject to an early termination fee. In other words, there's really no way to get this cheap service without first buying a decidedly expensive phone.

The disruptor as saviour

Taken together, the lack of compatible handsets, and the relatively high barrier of entry in purchasing the one device that is compatible, promise to keep Project Fi as a relative outlier for some time. To its credit, Google is fully aware of this, which is why it is framing this venture as an experiment, instead of a grand push to remake the wireless industry by sheer force.

One somewhat ignored but undoubtedly valuable feature: Fi customers have the ability to utilize a cloud-based version of their phone number, meaning that calls and texts need not be limited to the handset. Instead, users will be about to make and take calls, send SMS/MMS, and check visual voicemail on any device that supports Google Hangouts — which means most any modern-day platform or smart device with sufficiently compliant-standard web browser.

Finally, also to its credit, even with the modest subscriber volume Fi is likely to see initially, Google may still end up benefiting a much larger swath of the cellphone-toting public. If the service behaves anything like Fiber, it may push down pricing, and push up network quality industry-wide, as rivals, despite their size, see a potential steamroller bearing down in their rear view mirrors.

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