Why Google wants to become a wireless carrier

Google (GOOG) is preparing to stretch even further beyond its origins as a search engine: It's now reported to be readying plans to become a wireless carrier.

The move would apparently expand Google's initial forays into providing Internet service with Google Fiber. It would also be a strong competitive play and greatly expand the amount of consumer data the company could obtain.

Google would enter wireless by becoming an MVNO, or mobile virtual network operator. Such a company leases wholesale bandwidth from existing carriers and then resells it. According to the reports, the search giant is in negotiations with Sprint (S) and T-Mobile.

But the MVNO model has limitations, according to Neil Begley, a senior analyst with Moody's Investors Service, who spoke with CBS MoneyWatch. "Nobody's made a lot of money doing that," he said.

However, licensing bandwidth from other carriers would allow Google to learn more about the business. In addition, it could lobby for the federal government to free up unused spectrum, allowing it to offer additional services.

Google also wouldn't necessarily need to make extensive revenue as a carrier. The company depends on consumer data to enhance its advertising offerings and increase the revenue they provide. But when it comes to mobile data use, not even Google or Apple (AAPL) have information that rivals what's available to major wireless network operators like Verizon (VZ) and AT&T (T).

Those carriers monitor all the data consumers use, know the services they favor and have a record of where and when all activity takes place. As an MVNO, Google would have an opportunity to build far more extensive consumer profiles than what it currently has.

Even if it did want to build out a competitive service, Google would be in better financial shape to do so than either T-Mobile or Sprint, either of which it could afford to buy.

"It's a Catch 22," Begley said. "Without the scale [of current operations], you don't have the capital to sustain the investment to the rate of AT&T and Verizon." But Google has greater financial strength than either of those major carriers. According to Moody's, Google's credit rating is currently five ranks higher than Verizon's and four higher than AT&T's, which is currently on review for a credit downgrade.

Google also has much less debt than the carriers, which means it can free more of its significant cash flow to invest in wireless, if it wishes.