The Bauminator

Google Fiber’s $1 Deal

4/19/2013 4:43 AM

Google Fiber’s not paying a lot cash for iProvo’s network in Utah because, frankly, it doesn't have to.

"It became evident to us through a number of suitors that nobody was going to pay us cash for this network," Provo Mayor John Curtis said this week, according to the Deseret News. "We pulled in every conceivable buyer that we could. One by one, they came and they looked at our network and said, 'It's not worth anything.'” 

If the city approves the deal on Tuesday (April 23), Google’s prepared to pay some cash upfront to seal the deal -- about the amount of scratch you might find tucked in your couch cushions.

As we reported earlier, Google Fiber has agreed to complete the build out (only about 9,000 of 35,000 homes are even connected now, according to this blog post by Utah Valley Chamber of Commerce president Val Hale), upgrade the network to 1 Gig, wire up about two dozen local public institutions, and offer a free 5 Mbps Internet service for up to seven years. In turn, “we’ll exchange $1 to close the agreement,” a Google Fiber official told me. 

So, the build out, upgrades and freebies are really where the value comes in for the city, which originally tried to sell the network to help it pay down debt.  It couldn’t find a buyer that was willing to do that, and admitted that it was in a bit over its head with this project, anyway. Now it stands to extract something out of this fiber-woven albatross. The Associated Press reports that $39 million has been plowed into the iProvo network so far.

Google Fiber now has a chance to step in and complete the build out and deliver a faster grade of service, at a nice discount.  And Google Fiber’s entry on the project will keep Comcast and CenturyLink, Provo’s incumbent ISPs, honest and bring a more intense level of competition to the area.  And Google Fiber’s involvement will automatically give Provo lots more attention.

Google Fiber’s getting a sweet deal here, but it’s not getting a free ride, despite that $1 consumation price. The Utah Valley Chamber of Commerce's admittedly “back of the envelope” math suggests that it will cost about $18 million to complete the build in Provo.  And the costs don’t end there. Somebody has to pay for maintenance, upkeep, and the delivery of the actual services, with the hope that customers will sign up.

“That is a considerable investment in the network, and one the city would likely never had the ability to make,” Hale wrote.

And Provo isn’t alone.  Other municipal fiber networks, including Utah’s UTOPIA, are struggling. It’s easy to imagine that other municipals would  be willing to listen if Google Fiber swung by and plopped a similar offer on the table.

Meanwhile, Google’s not giving a lot of guidance on how big it will go with 1 Gig.  “It’s very early days,”  Google SVP and CFO Patrick Pichette said on Thursday’s earnings call. “It’s really about pushing for speed and writing the new chapter, the next chapter of the Internet.”

And Google continues to stress that this is about building a profitible business, and not an experimental black hole that eats spare cash. Google, company CEO Larry Page said, is on the lookout for "places where we can provide products that can make really big differences in people's lives." And "make a lot of money...doing it."