Google's Project Fi Impact Not Too Meaningful, Analysts Say

In a report published Thursday, Morgan Stanley analyst Simon Flannery argued that Google Inc (NASDAQ: GOOG) (NASDAQ: GOOGL)'s new wireless venture, Project Fi, is likely to generate a lot of press coverage, but the real world impact will be "somewhat less meaningful."

Project Fi starts at $20 per month and includes unlimited talk and text. Users can add data at the cost of $10 per GB with unused data being refunded and a Nexus 6 handset is required for the service. Two models of the Nexus 6 are offered for consumers to buy outright at $649 or $699. Alternatively, the users can finance the device for $27.04 or $29.12 for 24 months.

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However, according to Flannery, Google's pricing is "not that compelling." The analyst noted the average U.S. consumer is currently using two to three GB of data per month and the average revenue per user among cell phone providers is in the mid-$50s and falling. Project Fi's average bill is estimated to be $40 to $50 for the service, and $67 to $79 with handset payments included.

Flannery said that it is hard to see Google's pricing driving any "significant" migration from the major carriers. The analyst suggested that Google is "exploring this opportunity" and using the offering as "something of an experiment" to build on over time.

Bottom line, Google is offering a "pretty low" text and talk offering price of $20 per month that could be attractive in the low-end prepaid space, but only if cheaper handsets or a bring your own device option is available. In addition, refunding unused data and offering international roaming are "interesting" features. Nevertheless, the wireless competition space will remain ultra-competitive with Google competing against the major carriers that spend billions of dollars per year on advertising.