×
You will be redirected back to your article in seconds

Google Gets Fiber Fever

High-speed broadband network is growing fast enough to put U.S. cable and telco firms on notice in the long term

Google Fiber has gone from experiment to explosion.

What began about a year ago as an ultra-fast gigabit-speed fiber broadband network isolated in a single market is expanding faster than most expected. Fiber has added 10 cities surrounding its original footprint of Kansas City, Mo., and Kansas City, Kan., at launch, with two more markets to come in Austin, Texas, and Provo, Utah.

What Google labeled as “experimental” when its plans were first revealed in 2010 has certainly had a change in status; executive chairman Eric Schmidt emphatically declared Fiber was not an experiment by the end of 2012. But since then, various execs haven’t been too particular about the scope of Google’s ambitions. “A lot will depend on the rate of adoption, economics,” was the most Schmidt would offer in an appearance last week at the Allen & Co. conference. “It’s better than I expected.”

SEE MORE: View All Stories from Our Special Report on Google

It would be natural to assume that the rainbow-colored rabbit logo is meant to cover the continent and maybe even the planet in due time. But Google is conspicuously mum on its endgame, which may be a way of keeping off balance the well-entrenched array of cable and telco providers of broadband and video that represent formidable potential competitors. If they aren’t problematic enough, a nationwide rollout of Fiber would be an expensive proposition even for a deep-pocketed company like Google; investment banking advisor Evercore Partners estimates it would cost about $7 billion to equip eight million homes to receive the service by 2022. The company had $48 billion in cash and short-term investments at the end of 2012.

Says Bernstein Research analyst Carlos Kirjner, “It is not inconceivable that Google would have the resources to aggressively build out the nation over the course of 10-plus years.”

SEE MORE: In Piracy War, Google Seen as Unwilling Ally

The question is, does Google want to close that gap? How much of the incumbents’ market share can be stolen away, and how long would that take?

Fiber offers 1-gigabyte-per-second broadband access for $70 a month, cheaper than cable operator and telco alernatives and at far faster speeds; Verizon FiOs, by way of comparison, offers 300 Mpbs for $130 per month. In addition, Fiber comes with the option of a $120 package complete with multichannel TV along with a high-powered HD/DVR and Nexus 7 tablet that doubles as a remote control.

For all its technological advantages, don’t look for Fiber to be introduced into markets where the telcos already have their own fiber build-outs anytime soon, according to Dexter Thillien, senior analyst at IHS Global Insight.

“AT&T and Verizon have spent many billions of dollars establishing fiber networks in large population centers, something Google is unlikely to be able to match,” he maintained.

SEE MORE: Google’s Clout on Capitol Hill Concerns Hollywood

That said, there’s a wide middle ground Google could be exploring between one-off experiment and full-scale invasion. There are more than a few theories as to just what Google is up to, each with different motivations that may not mean an all-out assault on the likes of Comcast or Verizon, but still has implications for their ecosystem.

Creating a high-speed broadband network, even one that is seemingly so far ahead of the marketplace or its own competitors, allows Google to have a test bed for long-term planning. Think of Fiber as a very expensive time machine by which Google can go to the future in order to understand what consumption habits are like in order to future-proof its products and services — anything from YouTube to Gmail.

By that logic, Google could be content to stay in Kansas City and learn what it needs to know there. Still, expanding into other cities may provide a means of comparison with different approaches, whether technological or financial.

Another way of thinking about Fiber is that Google is building a fence around its cash cow: the paid search business. The whole reason the company even tries to launch new business lines like Fiber is to offset the eventual maturation of that very lucrative core business.

Fiber also may have the fringe benefit of playing well on Capitol Hill, which has Google in its crosshairs regarding multiple issues at any one time. Being able to boast about driving broadband access in underserved markets — and via sheer speed, maybe even easing concerns over network neutrality — could take some heat off the company.

Then there’s the theory that Google isn’t so much interested in competing with the incumbents as it is in appearing to be doing so in order to spur them to improve their own broadband offerings. It doesn’t matter to Google whether it is the one speeding up Internet access, as long as someone is, in order to increase usage of its many Web-based products.

Coincidence or not, both Time Warner Cable and Comcast have increased their download speeds, but with Comcast topping out at 105Mbps for its Extreme service, both are still far slower than Fiber. Distributors contend that Fiber is so far ahead of the marketplace with 1 Gbps that parity isn’t a priority.

Notwithstanding all these considerations, don’t assume that Google looks at Fiber as a loss leader. According to Kirjner: “Its marketing and deployment strategies clearly suggest an effort to create a profitable business.”

Cable operators currently have a commanding 63% share of the U.S. broadband market, according to Macquarie Capital, with AT&T a distant second with 22% and Verizon third with 15%. Macquarie projects that Fiber could take a 2% bite of the market by 2015 — mostly at the expense of AT&T’s share but not cable, which is estimated to grow its share to 65%.

Of all the incumbent broadband providers, it’s Time Warner Cable that has the most to worry about in the short term, given signifi cant market share in both Kansas City and Austin. Austin also will be an interesting market to watch, because AT&T intends to offer its own gigabit fiber network there, too. Fiber rollout is scheduled for mid-2014.

While MSOs may not be sweating much right now, they no doubt realize Fiber could materialize into a long-term threat. They don’t need to wait for Google to break its silence regarding its intentions; Fiber’s growth speaks for itself.

Google

Founded In: 1998
CEO: Larry Page
Location: Mountain View, Calif.
Market Cap: $306.2 Billion
52-Week Range: $568.40-$923.00
Employees: 53,891
Overseas: 70 Offices

Related Stories: Special Report on Google

Popular on Variety

More Biz

  • Harvey Weinstein

    Weinstein Can Get a Fair Trial in Manhattan, Says D.A.

    The Manhattan District Attorney’s office argued on Friday that Harvey Weinstein can get a fair trial in Manhattan, and blamed the producer’s defense team for much of the pre-trial publicity in the case. Weinstein’s attorneys have asked an appellate court to transfer the case — which is set to begin on Sept. 9 — to [...]

  • Leonardo DiCaprio Madonna

    Leonardo DiCaprio, Madonna Call for Action on Amazon Wildfires

    As wildfires rage at an alarming rate in Brazil’s Amazon rain forest, celebrities are using their platforms to bring awareness to the deforestation’s impact and to call for action. In the past week, stars like Leonardo DiCaprio, Madonna, Cara Delevingne and Ariana Grande have taken to Instagram to express their frustration with the lack of [...]

  • 'The Durrells' TV Show

    Greece Sweetens Production Incentives as Struggling Country's Economy Rebounds

    It’s taken the better part of a decade for Greece to show signs of recovery from the crippling crisis that almost pushed it out of the Eurozone. Now, with the economy slowly on the mend, the government is doubling down on efforts to jump-start the local film industry, giving a dramatic overhaul to the incentive [...]

  • Warner Music Group Partners With Audiomack

    Warner Music Group Partners With Audiomack

    Warner Music Group announced it has entered a partnership with the music streaming and discovery service Audiomack, marking the platform’s first licensing deal with a major label. According to the announcement, the two companies will work together on content concepts and explore ways to break emerging artists, connecting music fans with rising talent before they [...]

  • Scooter Braun Congratulates Taylor Swift on

    Scooter Braun Congratulates Taylor Swift on ‘Brilliant’ Album and Campaign

    Two days after Taylor Swift fired off the latest salvo in her battle with Scooter Braun, the manager congratulated the singer on the campaign around her “brilliant” new album, “Lover,” which arrived last night. The message came after Swift said she will be re-recording songs from her first six albums, which are now owned by [...]

  • David Koch Obit

    David Koch, Libertarian Activist and Billionaire Philanthropist, Dies at 79

    David Koch, brother of Charles Koch and one of the owners of Koch Industries, the second-largest private company in the U.S., has died at 79. According to the New York Times, Charles Koch announced the news of his brother’s death in a statement. Though he did not attribute to David’s death to a particular cause, [...]

  • Beverly Hills Realtor Accused of Stealing

    Beverly Hills Realtor Accused of Stealing From Usher, Adam Lambert

    A Beverly Hills real estate agent has been arrested on charges of stealing from the homes of celebrities, including Usher, Adam Lambert and “Real Housewives” star Dorit Kemsley. Jason Emil Yaselli, 32, is accused of encouraging an accomplice, Benjamin Ackerman, to enter homes during open houses in order to steal from them. Ackerman allegedly sold [...]

More From Our Brands

Access exclusive content