Bernstein Research Likes What it Sees in Google KC FiberFinds Strong Consumer Interest in New Offering 5/05/2013 8:25 PM Eastern
Bernstein Research is high on Google Fiber as a viable overbuilder with the possibility of it grabbing a bigger share of cable customers than traditional overbuilders, in part by offering a differentiated service.
A Bernstein Research door-to-door survey of 204 residents of Kansas City found both "extremely high" awareness of Google's new fiber offering (98%), and a willingness to buy, which the researcher said could mean it will be a successful cable overbuilder.
"Google is clearly trying to offer something different," said Bernstein, pointing to broadband upload speeds that are many times faster than cable. "Google will deploy multiple Wi-Fi-enabled boxes in the home, trying to achieve better in-home coverage and throughput. While we think it is extremely hard to differentiate the linear TV content offer due to restrictions imposed by content licensing agreements, Google is trying and will continue to try to differentiate the feature set of its video offer."
The Wall Street research firm said it did not think that Google Fiber would pass several million homes within the next couple of years, but it said, in the wake of the survey, that it was "substantially more positive on the prospects of Google Fiber to be an economically attractive business for Google on a stand-alone basis," by which it meant separate from whatever positive effect it had on Google's core business--search and search advertising.
In a note to investors last June, Bernstein said it still had a lot of questions about the KC service, including "whether or not Google Fiber offers will attract large numbers of customers in the Kansas City market."
According to the survey, 52% said they would "definitely or probably" buy Google Fiber, while another 25% said they may purchase the service. By contrast, only 19% said they definitely or probably wouldn't buy it. Most of those said they planned to sign up for bundled broadband and pay TV.
Of that 160 residents (77%) who said they were considering the service, 60% said they were extremely or very likely to buy it.
"These very high purchase intent numbers do not allow us to rule out the possibility that Google will indeed achieve very high penetration of homes passed, well in excess of the typical 20% to 30% that over-builders have achieved historically in their most successful markets," according to the report.
Bernstein says it thinks Google's adding $50 per month for pay TV to its $70 per month stand-alone broadband is a way to reduce churn and take a bite out of the cable competition, in this case Time Warner Cable, rather than representing a price point at which it will be making money.
Bernstein does not have a problem with Google's lack of traditional telephony in its bundle, saying that it does not think customers would decline to switch to Google's "more compelling" broadband offering because it does not include that third leg of the triple play.
It also argues it is a smart move because Google avoids the regulatory burdens like Universal Service and E911.
Bernstein says it does not think a "scorched earth" response from MSO's will work with Google Fiber. "Google has the resources to continue to build out and extend its footprint, even if the profitability of its initial markets is hampered by aggressive incumbent price cutting," said Bernstein.
The survey was of 204 residents in areas where Google has marketed its fiber service and where it was either already being offered or would be offered in the next few weeks. Bernstein has rated Google “outperform,” its highest rating, at a target price of $1,000.