Google's Fiber Network Strategy: First, We Take Kansas City...

Like Leonard Cohen in "First We Take Manhattan," Google (Nasdaq: GOOG  ) is trying to change the system from within.

Remember the ultrafast fiber networks Big G once promised to build? They're finally here, as Kansas City residents on both sides of the Kansas-Missouri divide can preregister for the service over the next six weeks. Google will then pull fiber to the neighborhoods -- sorry, fiberhoods, in Google's dorky dictionary -- with the highest interest levels first.

And you know what? This is almost enough to make me want to move to Kansas City.

What's the big deal?
This is the first time we have any details about Google's pricing and service levels. The broadband service will come in three flavors:

Cover a $300 installation fee (with installment plans available) and you get 5 megabits per second in both direction. The monthly price tag for this level? Absolutely free.

The middle tier multiplies the network speed by 20 to reach a full gigabit per second. Sign-up fees are waived here, but you'll pay $70 per month.

And the premium service bundles fiber-based TV service with the gigabit networking plan, including up to eight tuners for your TV sets and a DVR storage box to smooth out your viewing experience. Oh, and the included remote control is a free Nexus 7 tablet. There's no $300 installation fee, but you'll pay $120 per month at this level.

The gigabit services also boost your Google Drive allowance to a full terabyte of storage space.

How good are these plans when compared to existing alternatives? Pretty darn great.

Compared to what?
Verizon
(NYSE: VZ  ) doesn't appear to sell FiOS fiber connections in the area. This makes sense, because Google would probably have picked a FiOS-free city somewhere else for this experiment otherwise. But here in Tampa, Fla., I pay $69 a month for a measly 15-megabit connection. In Kansas City, I'd get 60 times the speed for the same price. Verizon's fastest connection tops out at 300 megabits, or less than one-third Google's speeds -- at triple the price. So the cost per megabit of speed works out to a 90% discount in Kansas.

Bundle a basic FiOS network installation with digital TV services, and you get a 50-megabit connection plus the full TV spread at $120 a month. You don't get a Nexus tablet, and when your sign-up promotion expires, you'll start paying additional fees per cable box and DVR. Depending on your priorities, this might be a competitive deal. But the Google guys will point at your feeble download speeds and laugh.

Cable giant Comcast (Nasdaq: CMCSA  ) just introduced a 305-megabit Internet service in select markets. This one runs $300 per month and comes with data caps, so downloading faster just exhausts your allowed bandwidth that much more quickly. Neither Verizon nor Google imposes that restriction on its customers. A $120 TV bundle caps your speedometer at 20 megabits per second.

Sweet! Where do I sign up?
Google's grand broadband experiment may never move beyond Kansas City, for all we know. That depends on how well the service is received by potential and actual customers, as well as how much effort Big G wants to put into running a whole new breed of services.

But even if this market is all we'll ever see, Google has already accomplished something. These aggressive price points and data speeds should make Verizon, Comcast, and every other incumbent service provider nervous. Google just showed that you can get much faster service at a much lower cost than we're used to.

This is not news to anyone with access to European network services, of course. It's just a shock to those Americans who were never exposed to affordable and ultrafast Internet options. In Spain, for example, Telefonica (NYSE: TEF  ) subsidiary Movistar can hook you up with 50 megabits for $49 a month, or twice the speed for the same price if you also have cellphone service with the company -- no bandwidth caps, no installation fees, and no multiyear contracts required. The Movistar deal may be a far cry from Google's gigabit goodness, but I dare you to find another offer in America than can compete with that.

Google doesn't really know what these warp-speed connections might be good for quite yet. And that's kind of the point. What happens when you connect local businesses and regular consumers to networking speeds they've never seen before? In the 2000s, the onset of megabit broadband (and demise of 56K modems) led to streaming video services, social networking, and more.

Could you have imagined anything like photo-sharing service Instagram or the graphics-intensive Pinterest in the pre-broadband days? How about streaming movies and music with Netflix or Spotify? Didn't think so. All of these things would be painfully slow or downright impossible to use over a squeaky modem connection, but they thrive on modern networks.

It's time to find out what the next quantum leap in performance might let us do.

One more thing...
And before I forget, don't scoff at the free-after-installation package. Five megabits is enough to enjoy today's online services, so this plan narrows the digital divide in a big way. Assuming that the installation fee really does cover Google's start-up costs, a trickle of low-grade broadband data costs the company essentially nothing, so the economics should work out. And once again, telecoms and cable giants should start checking their backs for multicolored daggers on a regular basis.

There's no obvious business reason to build this network, other than encouraging Kansas City to use the ad-festooned Web more. But Google is guided by the beauty of its weapons. Grabbing a large slice of the ongoing trillion-dollar revolution in mobile computing is almost a side effect of Google just being Google.

Fool contributor Anders Bylund owns shares of Netflix and Google and has created a bull call spread on Netflix for good measure, but he holds no other position in any of the companies mentioned. Check out Anders' holdings and bio or follow him on Twitter and Google+. The Motley Fool owns shares of Netflix and Google. Motley Fool newsletter services have recommended buying shares of Google and Netflix. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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  • Report this Comment On July 27, 2012, at 3:42 PM, rhealth wrote:

    Like Leonard Cohen in "First We Take Manhattan,"

    and the muppets, didnt they take manhattan too?

    This is pretty sweet and I hope sucessful. Verizon and Comcast are two of the worst companies in the world from a residential/business consumer standpoint. i'll be part of the fiberhood any day!

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