Tuesday, May 21, 2013

Google unlikely to deploy fiber broadband service nationwide

USA: Despite the expansion of Google Fiber to a third and fourth city—Austin, Texas; and Provo, Utah—Google Inc. is set to remain a minor player in the US broadband market, with the company unlikely to deploy the service nationwide due its high cost, according to a new report from the IHS Screen Digest Operator Multiplay Intelligence Service.

IHS believes Google Fiber will be offered only in smaller markets such as in the two new cities, which collectively have a population of about 1.4 million and roughly 600,000 households; as well as in Kansas City, Kan.; and Kansas City, Mo. The cities represent only about 0.4 percent of US households, so even if Google managed to secure a high market share in these metropolitan areas, it would reach only about 0.2 percent of US homes with the service.

In comparison, Comcast in 2012 boasted 18.3 million broadband subscribers, AT&T totaled 16.4 million, Time Warner Cable had 10.9 million and Verizon reached 8.8 million. Matched against any of the top eight US broadband companies, Google is a minor player.

“While the deployment of Google Fiber to the cities may capture attention, the company’s plans are miniscule compared to what its competitors undertake in the overall market,” said Dexter Thillien, senior analyst for multiplay at IHS. “AT&T and Verizon have spent many billions of dollars establishing fiber networks in larger population centers, something Google is unlikely to be able to match.”

Risky business
Rolling out fiber is a risky endeavor, and most companies do not expect to break even quickly. Because of this, Google has been expanding its fiber empire by buying up failed rollouts of unused fiber, otherwise known as dark fiber. In some ways, Google is being opportunistic in its experiment to bring high-speed broadband to various locations.

Alongside the trials of 2.5-gigahertz service in California, Google is focused on bringing its networks to specific areas to learn about trends in consumer usage of its content services. The company also is using this approach to gain a better understanding of how consumers use its core service: advertising.

However, if the fiber experiment is successful for Google, it may very well become a long-term undertaking for the company. This would allow Google to expand its activities beyond and leverage its entire ecosystem, which increasingly is encompassing a variety of business models and devices.

Google’s fiber experiment also may serve as a test to see how consumers might use more bandwidth, and inform the company about the sort of needs consumers might have over the next decade or so. This would help Google to develop products that meet these needs.

Cost cutting
One advantage of Google Fiber is its price compared to those of incumbent broadband providers.

The pricing plan for Austin will likely be similar to Google’s plan in Kansas City, with a free basic Internet connection at 5 megabits per second following a $300 construction fee, and 1 gigabit-per-second broadband available for $70 a month, or with TV service at $120 a month. These prices are similar to European offerings.

Some have argued that Google can deliver a lower-priced broadband service because it picks and chooses where to roll out—getting incentives from local governments to enter their communities. But AT&T also has announced its intention to roll out a fi ber network in Austin, meaning Google will have a harder time in the Texas capital because of increased competition.

Fiber rich
Austin may now become a broadband battleground, given that AT&T is using the city to be part of its strategy to increase fiber footprint as an element of its Project Velocity IP plan. However, IHS believes that AT&T’s main investment will continue to be rolling out 4G Long Term Evolution (LTE) services nationwide.

AT&T wants to use Austin to highlight the differences in regulation between incumbents and new suppliers such as Google, while at the same time put more pressure on the search giant by promising greater competition than Google’s previous launches. It remains to be seen if a city such as Austin needs two competing advanced fiber networks, as this would involve heavy investment.

The goal of AT&T in Austin may be more to issue a warning to Google and regulators. By doing so, AT&T is telling Google it can compete at the same location if it chooses to. The carrier also is signaling to the government that there is no need for two different types of regulations—one for incumbents, and another for new participants.

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