Monday morning on Feb. 3 the Washington Post reported that the Federal Communications Commisison (FCC) approved the proposal to create a Wi-Fi network across the entire United States that would allow users to make phone calls and surf the web for no charge. This is good news for some, and bad news for others. In short, this could be a war for the ages.
It goes without saying that cell phone carriers such as AT&T Inc. (NYSE:T), Sprint Nextel Corporation (NYSE:S), Verizon Communications Inc. (NYSE:VZ), and T-Mobile are opposed to the idea. Nearly all of their revenue comes from the cell service they provide, and a variety of Wi-Fi options. One of the biggest questions people are asking is the type of quality that would be provided. In other countries such as Estonia, free Wi-Fi networks are provided nearly everywhere. However, often times in these situations the connection is slow and unreliable – meaning people stay connected to the company’s that offer better service.
This could bode well for cell phone carriers if this is a problem. On the other hand, many people argue that the service we currently have is unacceptable and can’t get worse. Why do so many people drop calls, lose internet connections, have systems completely shut down for days at a time, etc? Both are good arguments, and depending on what happens this Wi-Fi system might not affect cell phone carriers. Here are some of the obstacles they must overcome.
Google Inc (NASDAQ:GOOG) and Microsoft Corporation (NASDAQ:MSFT) have already expressed excitement over the idea. In fact, because of the expensive prices other companies charge, Google Inc (NASDAQ:GOOG) has started developing a Wi-Fi system of their own called Google Fiber. Not only is it speculated to be cheaper than other systems, but approximately 100x faster than the average speed available to customers now.
While Google and Microsoft may be the front runners to partner with the FCC, this would not happen for quite some time. Currently, Google’s market cap is $254.2 billion, only $23.8 billion more than Microsoft’s. For investors worried about stocks being over-priced, that shouldn’t be a huge concern. Google shows a 5.2% FCF yield, with revenues increasing annually for over a decade, and are currently over 34x as large as a decade ago. Microsoft’s revenues dipped in 2009, but still increased nearly 230% for the decade. Microsoft seems to be much more discounted than Google with a 12% FCF yield.