Google announced last Wednesday that they were entering the broaband service provider market and would be offering service with speeds of up to 1gb per second to 50,000 customers with potentially providing service to up 500,000. If successful, they would expand after that. Similar to when Google entered the free e-mail service with Gmail and provided 2GB of storage while Hotmail and Yahoo offered 10mb(how did we survive), Google is proposing a broadband offering that is many times greater than the 5-10mb some of us currently receive. Most modem tests would reveal that we do not receive downloads speeds that fast, but that is what our providers tell us.
So how would can Google offer broadband speeds so much faster than the phone and cable companies and offer the service at a competitive price? They can build it an offer it offer it at competitive price because their goal is to offer the service as a trojan horse that is subsidized by advertising that will offset the monthly costs.
I know from my several years working in Telecom that the build out of a broadband network is very very expensive and depending on the penetration rates among the customer base, projections of ROI can vary greatly from neighborhood to neighborhood. Also with the high cost of construction, it is very likely that your estimated build costs will be much less than actuals. So here is where I think Google will focus to build fast and cost effectively:
Purchase Dark Fiber – Dark fiber is fiber that was placed in the ground(or Aerial) over the last 5-10 years that is not in use, but the capacity is available. The name is dark because there is no equipment on the ends of the fiber to “light it up.” Many companies bet on the growth of networks and user consumption faster than actually happened, so many companies put lots of fiber in the ground, but did not survive and this allowed other companies and many venture capitalists to purchase this capacity for pennies on the dollar. Fast forward 10 years and consumption is starting to catch up with capacity which presents a great opportunity for others to compete. Well sort of. Dark fibre primarily was placed in large urban areas or down large busy streets throughout suburban areas. Those rural areas that still struggle with broadband service today will still struggle with broadband under Google’s plan because the real expense is not in the placement of fiber on the main streets, although that is expensive too, the cost really skyrockets when you have to go through every neighborhood and backyard. The cost per foot of burying cable in residential areas is so high that most companies make decisions about what neighborhoods they will serve and how many homes they can serve from the same cable based on assumed adoption rates. If your nearest neighbor is a half-mile away, Google’s plan will not help you. Your only hope is your telecom service as they are the provider of last resort, but this does not apply to broadband services. It has been speculated that Google has been buying dark fiber for the last 5 or 6 years.
High density buildings – Google will be able to hit their mark of 50,000-500,000 relatively easily because they will focus on very dense urban areas where there are large, multi-tenant buildings. Think of cities like Chicago, New York, and San Francisco. These are the cities where the population is dense enough and close enough to dark fiber, that Google can reach them quickly and cost effectively. Multi-tenant buildings only require a one time build-out and can usually service everyone in the building and if there is growth, the cool thing about fiber is you can typically just change the equipment at the ends and multiply the capacity. So you should not expect Google to be offering service in many residential neighborhoods as they will have to focus on dense populations for their model to work.
Disruption of the industry – Much like many other industries that Google enters that does not seem like a good fit, my assumption is Google does not want to be a real broadband provider, but has a goal of reshaping how phone and cable companies offer the service today. Google know the faster the speeds that consumers and businesses have accessibility to, the increase of consumption. This translates to growth for Google and greater ways to track and target consumers from an advertising perspective. When Google bid on wireless spectrum a few years ago, it proved true that they did not intend to build out a wireless network, but what they did do was get the FCC to rewrite the rules in their favor. That push several years ago has opened the door for the Google phone and VOIP on mobile devices which over time will circumvent the wireless provider networks for minutes and all will become simply data. When that happens, then no one is at the mercy of AT&T or Verizon and they will simply become a pipe and the functionality will all be in the device, not the network.
Government Subsidies – The other way that Google will make the service affordable is because they will pressure the municipalities to cut them deals on franchise agreements that are far and away more affordable than the telecom and cable companies pay today. My bet is Google will almost force them not to charge any fees or taxes and Google can do this because they are not required to offer the service anywhere. So all they need is a few cities to play by their rules and the others will have to adjust and play that way if the service gains critical mass. Since many of these cities are struggling financially, it is the perfect time for Google to form some partnerships that create some positive press for local politicians.
Previous Google Failures – Google has not always succeeded with it’s aggressive attempts to enter new markets. Their foray into municipal Wi-Fi is an example of a plan with large potential that never materialized. The plan was for Google to partner with Earthlink and offer free Wi-Fi service to the City of San Francisco. The plan had large political support, but as setbacks and price grew, the support faded and the build-out failed. So although Google’s plans for broadband sound good right now it is proven that the implementation is the more difficult part.
No matter what route they take, the plan is probably pretty far down the road already since they have made an announcement. It will be interesting to see how it turns out, because I can tell you from experience that building a network is far more simple on the drawing board than it is on the concrete. Things that make sense from a consumer and business perspective can be held up by local politicians, internal disagreements, and an inability to control costs. These are all challenges that Google faces and many more. Hopefully, they can pull it off, but would not be surprised if this does not make it.
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