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.”
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.”
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.
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.
Founded In: 1998
CEO: Larry Page
Location: Mountain View, Calif.
Market Cap: $306.2 Billion
52-Week Range: $568.40-$923.00
Overseas: 70 Offices
Related Stories: Special Report on Google
- Special Report on Google: YouTube, Glass, Fiber & More
- How Much Could Google Glass Change the Way People Consume Content?
- In Piracy War, Google Seen as Unwilling Ally
- Google’s Clout on Capitol Hill Concerns Hollywood
- Google Glass Pros: In the Long Run, the Benefits Outweigh the Drawbacks
- Google Glass Cons: How the Camera-Embedded Eyeglasses Could Shatter Privacy
- YouTube Content Partners Want to Reduce Their Reliance on the Video Site
- YouTube Pay Channels Aren’t Taking Off Yet, Some Partners Say