It’s a good thing Google has deep pockets. The company will need to dig deep if it’s serious about a proposed plan to weave fiber into another nine metropolitan areas and 34 cities in all, creating a new competitive threat to incumbent service providers such as Comcast, Time Warner Cable, Cox Communications and AT&T.
While Google Fiber has not committed to a single new buildout beyond what it currently has underway in Kansas City; Provo, Utah; and Austin, Texas (starting in mid- 2014), it would be looking at a fixed network investment cost of between $2.2 billion to $3 billion, according to Bernstein Research analyst Carlos Kirjner.
That figure excludes “success-based capex” — the costs for the customer premises equipment (set-tops, routers and modems) and the physical connection to each household. Based on the research firm’s street-by-street analysis in Kansas City last year, Kirjner estimated this piece would run Google Fiber about $600 to $900 per home, depending on whether the customer took only broadband or the broadband/TV bundle.
Assuming a penetration of about 25% of homes passed in the first year, that would result in another $500 million in capital expenditures, minus the service revenue, Kirjner said.
So it’s not a cheap proposition, even for Google, which spent $7.4 billion in total capex over the last 12 months.
Still, Kirjner is bullish on the idea as a whole, estimating that Google Fiber stands to create a profitable business and pull in an internal rate of return of more than 20%.
But there’s still no telling how broadly and quickly Google Fiber will expand. The company last week said it was merely “exploring” an expansion, opening up talks with cities to study the economics and timeline for a buildout, with locations selected by the end of the year.
Several believe Google Fiber’s primary motivation is to build a profitable business, and not its widely stated mission as a science experiment designed in part to influence regulators and policymakers.
If that scenario were to play out, Google Fiber would be positioned to reach an additional 3.3 million homes and up to 4.1 million homes total when factoring in its current deployment plans.
And Google Fiber’s presence would be a frightening competitor to area incumbents. It currently offers a standalone 1-Gigabit-persecond broadband service for $70 a month in Kansas City and Provo, and has stated that 10-Gbps speeds are on the roadmap.
Who should be worried? Google would face off with Comcast and AT&T in Atlanta; Time Warner Cable and AT&T in Charlotte, N.C.; Comcast and AT&T in Nashville, Tenn.; CenturyLink Communications and Cox in Phoenix; Comcast , Frontier Communications and CenturyLink in Portland, Ore.; TWC and AT&T in Raleigh-Durham, N.C.; Comcast and CenturyLink in Salt Lake City; TWC and AT&T in San Antonio, Texas; and Comcast and AT&T in San Jose, Calif.
While presenting a potential new rival in new markets, Google, ironically, is doing Comcast a favor as the MSO pursues a merger with TWC. Comcast identified competition with Google Fiber as one reason why regulators should consider the deal, even though Google presented only a minor threat to Comcast in Provo and Olathe, Kan. Google’s revised course of action seemingly strengthens what was originally considered a weak argument.
It’s a good thing Google has deep pockets. The company will need to dig deep if it’s serious about a proposed plan to weave fiber into another nine metropolitan areas and 34 cities in all, creating a new competitive threat to incumbent service providers such as Comcast, Time Warner Cable, Cox Communications and AT&T.Subscribe for full article
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