Google's Wireless Plan Underscores Threat to Telecom

With eBay's purchase of Skype and Google's free WiFi service in San Francisco, Internet companies are making an aggressive and unprecedented push into services traditionally offered by phone and cable companies -- threatening to upend the business of transmitting voice and data. Troubling for telecoms, Google would bring to the industry an entirely different business model. Google generates nearly all its revenue, which totaled $3.2 billion last year, from the small advertisements it shows alongside search results and other Web content. By offering consumers free service, Google could pressure traditional providers to slash fees for Internet access, a growing source of telecom revenue -- when they don't have Google's advertising revenue to make up the difference, and have large, extensive networks for transmitting voice and data to maintain. Google's proposal to use wireless fidelity, or Wi-Fi, technology would cost far less than a traditional network. It also would give Google a direct pipeline into consumers' homes -- long the big edge for telephone and cable companies. Ironically, most of the newer, bigger Internet entrants see telecom services almost as an afterthought, not a key product. Companies like Google, Yahoo Inc., Microsoft and eBay consider free voice just an add-on service they can provide consumers to win their business loyalty and make their main businesses more attractive. For example, eBay customers could buy and sell more if they can talk to each other. EBay and Google have even said explicitly they are not seeking to compete with telecoms. But whether it's deliberate or not, some industry executives and analysts think their plans potentially could steamroll the telecom model.
[SOURCE: Wall Street Journal, AUTHOR: Jesse Drucker jesse.drucker@wsj.com, Kevin J. Delaney kevin.delaney@wsj.com and Peter Grant peter.grant@wsj.com]
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