Google Fiber enters new phase with promising offers

Tuesday 31 July 2012 | 12:20 CET | Market Commentary

Google has started a new phase of its Google Fiber project. The subscription period has opened, and on 10 September the company will announce which areas (‘Fiberhoods’) in Kansas City will be connected to the service. It also unveiled the details of three subscription plans.

Google Fiber was first announced in February 2010, and a little over a year later Kansas City (twin cities in Kansas and Missouri) was named the winner out of the over 1,000 applicants for the project. Google has also now confirmed that while Google Fiber is considered an experiment, if it proves successful it will be expanded to other cities.

The company has set a minimum threshold of 5-25 percent of the 250 to 1,000 households in each neighbourhood subscribing to services in order for roll-out to go ahead. After two days, already 20 percent of Kansas City, Missouri had signed up, as well as three neighbourhoods in the sister city in Kansas. The cities have respectively 170,000 and 54,000 households. The subscription registration costs USD 10.

The first service proposition will cost USD 120 per month and includes IPTV (161 HD channels) and internet access with symmetric speeds of 1Gbps. The TV package lacks a few notable broadcasters, such as ESPN, Fox and HBO, but Google is likely still in negotiations on these. Customers will not be charged a connection fee, and the included hardware comprises a Wi-Fi modem/router (the Network Box), a set-top box (the TV Box), a DVR with eight tuners and 2 TB storage (the Storage Box) and a Nexus 7 tablet, which also works as a remote control. Customers will also get a Google Drive account with 1 TB of online storage, and there is access to various over-the-top services, such as YouTube and Netflix.

The second proposition includes only the above internet connection, with a modem. Again, no connection fee is charged, and the monthly fee is USD 70. For the third proposition, customers pay the USD 300 connection fee, but no monthly subscription, and receive a slower broadband service of 5/1 Mbps.

One can only praise these offers. The TV content is good (assuming ESPN, Fox and HBO are added later), the 1 Gbps connection will support any application, and the price is low, especially for the American market. It's not surprising that an over-the-top service provide like Google has left out any telephony offering, nor that there's no data cap.

Time Warner Cable, AT&T and SureWest can prepare for a challenge. While they will likely come with their own local offers, and Google's network will likely have some problems at the start, all the elements are there for a small revolution on the local market. Speed is no longer scarce, and as such no longer an instrument to shape prices. In the philosophy of Google (and other Gigabit providers), bandwidth should not form any limitation on what the subscriber wants to do online. Furthermore, this should drive developers to come up with new applications to take advantage of these speeds. 

Google will profit in the end from the advertising revenues and certain paid propositions, such as extra storage, software and possibly additional hardware. With the use of IP technology, the company will also gain access to detailed user information to customize its ads. The remaining question is whether the network will be profitable and what the roll-out will cost. Google is keeping costs low by using utility poles for 70 percent of the households, and where digging is necessary, micro-trenching should help keep costs down. Besides that Google has developed all the hardware itself, which may mean extra costs now but will result in valuable assets and lower costs later on. 

The government should also be happy with Google’s experiment. Google Fiber should help stimulate competition and push prices lower (at least in Kansas City). Comcast is currently charging USD 100 per month for only an internet connection at 50/10 Mbps. The gigabit network operated by the utility EPB in Chatanooga charges USD 300 per month. Only Sonic.net, active at a very small scale in California, is offering similar offers, at USD 70 per month for a gigabit connection. Google Fiber will also contribute to innovation. Growing internet use is seen as having a positive effect on the economy, society and the environment. It's up to Google to make the project a success, and then the world can see the theoretical benefits of a gigabit connection can really contribute to economic growth, a better society and a greener environment.

Speculation will likely grow in the coming months over which other US cities will get Google Fiber and if the project could cross the ocean. This could target areas where incumbent operators are showing little interest in fibre, where internet use still lags national averages, where there's potential for high uptake and where broadband tariffs are high. 

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