The big challenge facing Google's new smartphone service

Google's Project Fi aims to reduce the cost of wireless connectivity by helping customers rely more heavily on cheap Wi-Fi networks rather than expensive cellular ones. These services will exert some pressure on incumbent wireless cellphone carriers to cut prices. But so long as Google is reselling those companies' services, there's a limit to how much savings it can offer. The big question is how much Google can help customers shift off of cellular networks in favor of free Wi-Fi networks. The experience of Republic Wireless, a startup that pioneered Google's Wi-Fi-first model, suggests that it's not as easy as it looks. First, Project Fi will be most appealing to customers at the low end of the market. If you want a bare-bones plan that uses less than 1 GB of data from cellular networks, Project Fi is a more affordable option than any of the alternatives. On the other hand, for customers who need large amounts of cellular data Google's offering isn't a particularly good deal. Other providers offer cheaper packages at the 3 GB and 5 GB levels. And if you know how Project Fi works, this makes perfect sense. Google doesn't own its own cellphone towers; instead, it's reselling capacity provided by Sprint and T-Mobile.

The people running those companies aren't stupid, so they're not going to sell Google capacity at a price low enough for Google to undercut their own offerings. Google can't offer customers lower rates for cellular data, but it might still be able to save its customers money by helping them shift more of their traffic from expensive cellular networks to affordable Wi-Fi ones. If Google can help customers use Wi-Fi more and cellular service less, it can save customers money.