Google's Project Loon Woos Telecom Giants

Some telecom analysts view Project Loon, Google's effort to beam Internet signals from high-altitude balloons, as a threat to incumbent carriers. But Google wants to partner rather than compete, and some large wireless players have stepped forward.

The search giant said Monday it will team up with Telstra to test 20 Loon balloons in Western Queensland next month. The telecom provider — Australia's largest — will give Google access to wireless spectrum and terrestrial base stations, a Google spokeswoman said.

Google is running similar tests with Britain's Vodafone in New Zealand and Spain's Telefonica in South America.

Loon aims to operate a ring of balloons circling the Earth at roughly 65,000 feet that receive and transmit via LTE, a popular mobile communication standard, to extend existing wireless networks to less-populated areas that previously were considered too expensive to cover.

The effort faces substantial technical and regulatory challenges, but its business model is emerging. Google's pitch is that telecom companies keep their relationships with subscribers, while Loon reduces the cost to expand into rural areas and ultimately fills out spotty coverage.

If Google manages to get commercial service up and running – a big if – it plans to share revenue with telecom providers.

"We partner with telcos in every country we roll out in," said Mike Cassidy, vice president of Project Loon, during a talk on November 8 at The Next Billion conference in New York. "The telcos are trying to reach their rural population that they can't reach today. The telco does the billing for the customer, they own the customer, they do the customer support. They market the service to the customer."

Google hopes to make Loon a cost-effective alternative to building new ground-based cell towers, he explained.

"We ask, 'What if we put the cell towers up in the sky and share the revenue with you?' They say, 'sounds great,' and it's working really well," Cassidy said.

However, the relationship is not as cozy as Cassidy portrays, according to Rajeev Chand, head of research at Rutberg & Company, an investment bank focused on the mobile industry.

Telecom companies are concerned that Google could use Project Loon to compete with them, Chand said. Google already competes with broadband Internet providers through its fast fiber-optic Internet service, Google Fiber, in some U.S. cities.

However, telecom companies in developing markets have a "genuine interest" in testing integration with Loon, he added.

Chand recently talked to 12 wireless network operators about Loon and heard mixed views. Some, like Telstra, Vodafone and Telefonica, are already testing it, while others are considering tests and a third group did not want to get involved. He declined to mention other company names, but said they are all outside the U.S.

Loon may help telecom operators reach people who currently lack Internet connectivity, which is a goal of many governments. So a partnership with Loon may help telecom companies negotiate with regulators for more wireless spectrum, Chand said.

Such partnerships may also help wireless operators negotiate with existing telecom-equipment makers, such as Ericsson, Huawei, Nokia and Alcatel-Lucent, which sell components for existing network expansion through cell towers, he added.

"Loon has graduated from silly to an experiment that people need to pay attention to, partly because of telecom operator involvement in these tests," Chand said.

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