Google Fiber: Not Coming to a Town Near You

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People are excited about Google (NASDAQ: GOOGL  ) Fiber. The search giant's foray into gigabit fiber optic broadband service represents an important catalyst for the industry, while also embodying a potentially disruptive threat to incumbent cable companies that are intent on holding America captive through high prices and slow speeds.

The company has also picked up the pace. After the initial rollout in the Kansas City area, Big G subsequently announced expansion into Austin, Texas, and Provo, Utah. Those back-to-back announcements were encouraging signs that perhaps Google had grand ambitions to expand Fiber's reach.

Could Google potentially roll out Fiber nationwide and really put the heat on the cable companies? Don't hold your breath.

Easier said than done
Market researcher IHS doesn't think it's feasible for Google to deploy Fiber nationwide, even though the Austin and Provo announcements were so rapid. Google will always be a "minor player" in the U.S. broadband market, according to IHS. Rolling out on such a scale would simply be too expensive.

The researcher estimates that the total population within all the currently planned cities is about 1.4 million, or about 0.4% of all U.S. households, which is fairly close to my initial estimates before Provo was announced (Provo has a relatively smaller population of an estimated 115,000). Even if Fiber were to dominate the markets that it's available in, Google would have only about 0.2% market share of all U.S. homes.

In comparison, Comcast (NASDAQ: CMCSA  ) has 18.3 million broadband subscribers, AT&T (NYSE: T  ) has 16.4 million, Time Warner Cable (UNKNOWN: TWC.DL  ) boasts 10.9 million, and Verizon (NYSE: VZ  ) enjoys 8.8 million subscribers.

Source: IHS (May 2013).

The broadband industry favors large incumbents, because of high infrastructure costs that inevitably result in an oligopoly market structure. AT&T and Verizon have shifted their focus away from the wired side, content to let Comcast and Time Warner divvy up the business, in order to focus on the high-growth wireless segment. Google has very little chance of making a meaningful dent in these companies' overall subscriber bases unless it's willing to invest billions in infrastructure. IHS analyst Dexter Thillien doesn't think Google will be willing to match how much AT&T and Verizon have plunged into their own fiber networks over the years.

However, Google has some cost advantages. By slowly rolling out in select locations after receiving incentives from local governments, it can offer lower prices than its rivals. The flip side is that competitors can request similar incentives to build their own networks, much in the way AT&T did when it announced "intent" to upgrade its fiber network in Austin if it could score the same incentives.

Google Fiber is very much what Internet service should be, but making it a reality is much easier said than done.

As one of the most dominant Internet companies ever, Google has made a habit of driving strong returns for its shareholders. However, like many other Web companies, it's also struggling to adapt to an increasingly mobile world. Despite gaining an enviable lead with its Android operating system, the market isn't sold. That's why it's more important than ever to understand each piece of Google's sprawling empire. In The Motley Fool's new premium research report on Google, we break down the risks and potential rewards for Google investors. Simply click here now to unlock your copy of this invaluable resource.

Read/Post Comments (5) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 26, 2013, at 7:47 PM, lakawak wrote:

    The fact is, financially, this has been a huge disaster for Google. The bast majority (over 80%) of users in KC have chosen the free option. A money loser for Google.

    Google has a history of starting things and then forgetting all about them after a year or so. 7-8 years ago they said that they were going to blanket the country in free WiFi. But after al this time, they have not expanded beyond their oriignal test cities. That is the fate of Google Fiber.

  • Report this Comment On May 26, 2013, at 8:16 PM, andiconda wrote:

    Please, I am so happy you feel the wight brothers gave up on first several flight attemps

  • Report this Comment On May 26, 2013, at 9:44 PM, wh32 wrote:

    What I don't understand is why Google didn't implement Fiber to Wireless (the latest WiFi 802.11n or ac) since it's cheaper than dedicated fiber to the home? Existing copper connections to the home are a significant cost because they don't multiplex the hardware among many users. The cell phone guys use fiber to the cell site for that reason. WiFi nodes may need to be pretty high density but each node is probably about the cost of fiber to each 2-3 homes. Each home doesn't need more than 10Mbps (Kansas city free is 5Mbps) so a WiFi node could handle about 30 homes (with adapter's on each home's roof.) A Gigabit fiber should be able handle one or more nodes.

    The weird thing is Google WiFi in hometown Mountain View, CA has been lousy for the last 6 months due to broken equipment and lack of maintenance, not due to excess loading. See Google user group!forum/google-w...

  • Report this Comment On May 27, 2013, at 4:03 AM, ninjew wrote:

    Lakawak, you do realize that a majority of the money google makes comes directly from advertising right? Even if a Majority opted to go for the free internet chances are they would be redirected to google. It's still money for them because their advertising will reach them.

  • Report this Comment On May 27, 2013, at 12:06 PM, tomgonz wrote:

    Google does very little to benefit the consumer. Its only driving factor is $$. If they had nation wide wifi/fiber it would be only to suck more eyes to their ads. That is the only way they make $$.

    They need content to put ads on and ways to track everythime you goto bathroom so they can show t-paper ads right after or if you look at obits somewhere you'll get ads for coffins or funeral homes. I dont trust them to do a thing to help make the world better.

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