New Revelations on Google Fiber Spell More Bad News for AT&T and Verizon

Many have wondered what Google (NASDAQ: GOOG  ) (NASDAQ: GOOGL  ) was thinking when it set out to build Fiber, a high-speed broadband Internet service that's 100 times faster than the average broadband. The estimated cost of this service has been figured at $20 billion-$28 billion over the next 10 years. It will provide direct competition for AT&T (NYSE: T  ) and Verizon (NYSE: VZ  ) , and leaves Google possibly needing to acquire a company with significant fiber mileage like Level 3  (NYSE: LVLT  ) .

However, following news last week, the plan for Fiber has become much clearer and could now mean even more bad news for every company that stands in its way.

Building a network beyond Fiber
Google might be the first company to build a broadband network and ask customers to sign up before it's built. In true Google fashion, the company has also been able to use the utility poles of its peers, like AT&T, which has saved on costs in its first two build-outs. Therefore, in obtaining these unprecedented special privileges, it's no wonder that Google has announced an expansion plan into 34 new cities.

Still, it would take many years for Google to match the size of AT&T's U-Verse, which has nearly 11 million customers and more than $12 billion in annual revenue, with growth of 25%. With Internet alone, Fiber is not a make-or-break project for Google, although AT&T's effort is a major growth driver for that company.

With that said, there have always been a lot of questions regarding Google's plan for Fiber, as the company notoriously has a way of surprising consumers and being one step ahead of the competition. Already, Fiber is transcendent with its speeds, but as some might expect, there are now reports that Google Fiber will be the company's entrance into becoming an all-around wireless provider, including Internet, TV, and maybe even mobile -- something that should be costing AT&T and Verizon executives many sleepless nights.

How could Google achieve such a feat? It could continue to build the network, or in a real case of irony, it could act as a mobile virtual network operator, which basically means Google would use an existing network. However, by bundling the best Internet service the world has ever seen with mobile and TV, it's likely that Google would thrive.

For those who believe the FCC would never allow Google to use another provider's network, just remember the fuss being made with Softbank trying to acquire T-Mobile, and the fact that the FCC's biggest argument centers around there being just four current nationwide telecoms, meaning the FCC would likely welcome Google with open arms.

What could Google become?
So, how significant is this news, and how much revenue could Google earn? The answer to this question lies in AT&T and Verizon, as Google would offer services that go toe-to-toe with these companies. In the last year, AT&T has brought in revenue of nearly $130 billion and has an operating margin of 23.6%, two metrics that are likely very attractive to Google. Verizon brought in $120 billion in revenue and has an operating margin of 26%. But remember, Verizon previously only owned 50% of its wireless segment. It now owns 100%, implying a larger business than the fundamentals reflect.

All pieces are in place for Google to make a serious run at becoming relevant in this space, possibly adding another $100 billion in revenue, one day, to its existing business. However, Google is going to have to spend money, or make acquisitions, and investors should find it very convenient that on the day of this news, Google introduced new non-voting, class-C shares, which will provide the company more currency for acquisitions. Where might Google make moves?

Level 3, a telecom equipment company with $6.3 billion in annual revenue and 35,000 route miles of undersea fiber-optic cables worldwide, would give Google what it needs: fiber and the ability to eventually expand this business worldwide. While Level 3 is one possibility, there are countless moves that Google may make.

Final thoughts
Regardless of what moves Google makes, one thing is for certain: Google is making moves to becoming a best-in-class Internet provider and major threat to large telecom companies. For investors, this could eventually mean adding the value of a Verizon or AT&T to Google's market cap, and that's on top of the many growth segments this company has in play. Overall, Google looks incredibly well-positioned for the next decade as a rather safe, ambitious, and fast-growing juggernaut.

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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 April 05, 2014, at 10:25 AM, legacys7 wrote:

    If there's a company that can achieve this impossible task, it's Google. So far it is the only company, where others have at failed at, has given Apple competition in the mobile device industry. They moved very fast in that field.

    I have no doubts that with Google's money and innovation, they'll move fast in the internet service provider business, giving Comcast a run for it's money. Especially due to the fact that it is offering the same and much faster speeds that have been in Europe for a long time now. If Google can offer it for a cheaper deal, Comcast will go down in that department. And I hope that they do.

  • Report this Comment On April 05, 2014, at 11:06 AM, Gridlocked wrote:

    Level 3 has 30,000 miles of dark fiber in metro areas which may include over seas areas.

    To put that in perspective Verizon has 18,000 miles of fiber in Massachusetts alone.

  • Report this Comment On April 05, 2014, at 12:35 PM, GaryDMN wrote:

    You giving Google way to much credit, you do realize that they are an advertising company, don't you? Their marketing department has done a great job of fooling you into thinking they are something they are not. Google Fiber consists of a small cable operator Google bought in Utah and lines they leased from AT&T in Kansas City. If they become a virtual fiber carrier, they help AT&T, not hurt them, because AT&T and others hold the municipal franchises everywhere across the country. Google has hype, but little substance, beyond their ad platform and the services that draw people into that ad platform. You are helping them with their vaporware campaign, by providing more unrealistic fluff, with no substance. Granted, that the existing monopolies, shouldn't exist, but the government has granted them franchises to exclude competition, which limits choice and options, but just wishing for someone to compete with them is not enough to make it happen.

  • Report this Comment On April 05, 2014, at 12:49 PM, bendriver wrote:

    "You giving Google way to much credit, you do realize that they are an advertising company, don't you?"

    Um No...Google is a search engine company(thats what they made a majority of their money and fame on)

    Gary please stop posting...

  • Report this Comment On April 05, 2014, at 1:00 PM, smilingdon wrote:

    PLEEEZE come to Jacksonville, Fl area! I am so sick of AT&T shoddy service and treatment!

  • Report this Comment On April 05, 2014, at 1:52 PM, Death215 wrote:

    I think people are DYING to dump comcast, verizon and time warner.

    These companies have been sticking it to us for years and im glad to see a newer and bigger competitor is setting their eyes on their market.

    I would dump my verizon in a heartbeat for google fiber. They have been giving me crap service for years and i have no other choice but to stick with them or the more expensive greedy machine comcast.

  • Report this Comment On April 05, 2014, at 1:54 PM, Death215 wrote:

    As for GARYS point. Everything and everyone on the interest sells ur info to advertisers or other for other purposes.

    If you are online through the your home, cellphone or tablets your data is being harvested, used and sold.

  • Report this Comment On April 05, 2014, at 8:54 PM, doawithlife wrote:

    I've said it many times before.

    Someday we will all live in Google government housing, watching our google TV's, eating googl-o's.

    It could be worse, it could be Comcast.

  • Report this Comment On April 05, 2014, at 11:48 PM, BrianNichols wrote:

    Google is a disruptive giant that dominates any market it enters, and now, it has a new stock type to dilute and create cash for such buildouts.

  • Report this Comment On April 06, 2014, at 12:41 AM, RealSteall wrote:

    Lol...where the heck does this guy get Google leasing from AT&T here in Kansas City? That's a laugh. I live here, have the service, they laid almost all new infrastucture, including tunneling where needed, tearing up streets to get to areas, and re-building the areas they had to tear up.

    They used the same poles that AT&T and Time-Warner use as a means of access. Those poles do not belong to AT&T, those are poles that were paid for with federal taxes, so they have just as much access as AT&T and Time Warner. They are not leasing anything from AT&T, probably taking customers from them because this is a better service, its cheaper, and the equipment is new. With Google Fiber, you do not need a wireless router with the modem they supply. It is contained in the Fiber modem. You get clear, crisp, uninterupted service. AT& T, and Time-Warner have some of the worse equipment, and you do need a wireless router to get access if you go wireless.

    Its is a no brainer so far, this service will eventually catch up and pass them all if they do not come up with something as competitive. But how can you beat, $350, for 7 years, at speeds faster than Road Runner. AT&T speeds do not even count. This was one of the best moves I have made for an ISP,,,,,,,,,Google HAS delivered!

  • Report this Comment On April 06, 2014, at 3:11 AM, greenknight32 wrote:

    It's not that monumental a task, nor is it surprising - lots of other countries have internet service like Google is providing. In the US, people want faster service, but lack of competition meant the carriers could continue to profit from their existing infrastructure - they could charge high prices for inferior service, so they had no incentive to upgrade. Thus there's a huge unfulfilled demand, but it would take a massive amount of capital to fill that vacuum.

    Google has access to that kind of capital. Plus, their core business is dependent on people's internet connections - the faster they are, the more searches they can do, the more links they can check out, the more revenue for Google. Google can corner the market for ultra high speed internet, and enhance their core business at the same time - why wouldn't they?

  • Report this Comment On April 06, 2014, at 1:29 PM, throwintre wrote:

    I'm pretty sure it was a motley fool article last year that said Google would never build out for more than the three or four cities and at&t and Verizon didn't really have to worry about Google.

  • Report this Comment On April 06, 2014, at 11:57 PM, LouisTewl wrote:

    > "Brian Nichols owns shares of Verizon Communications. The Motley Fool recommends Google (C shares). The Motley Fool owns shares of Google (C shares). <"

    With TMF, I have adopted the 'best practice' of scrolling down to the END of the article and reading their disclaimer FIRST because TMF has, unfortunately, become rather notorious for writing "Propamercials" in favor of whatever stock they have a long position in, irrespective of reality.

    TMF's stated goal is "To educate, enrich, and amuse." Well, IMHO, the investors they are primarily interested in 'enriching, and amusing' are themselves. They have an interest in 'educating' their readers only to the extent that it furthers the last two portions of the stated goal for them.

    THIS truth, while educational and possibly enriching in a contrary sense, is, to me, not particularly amusing.

  • Report this Comment On April 07, 2014, at 7:49 AM, PrimusZa1 wrote:

    RealSteall, you really don't understand how things work in the telecom world. All structure is owned by the respective company that placed it. You have to lease space on the pole, manhole, conduit, etc. So all poles that Google is attached to is money paid to AT&T, Comcast or the local power company every year. I have no doubt that they paid to have someone place new structure in some areas that they in turn will own but will have to allow leasing to other companies (including AT&T and Comcast). Also by Google getting favorable deals with the local governments that wish to put Google fiber in they also open those deals to the other providers.

  • Report this Comment On April 07, 2014, at 8:35 AM, PrimusZa1 wrote:

    RealSteall, you really don't understand how things work in the telecom world. All structure is owned by the respective company that placed it. You have to lease space on the pole, manhole, conduit, etc. So all poles that Google is attached to is money paid to AT&T, Comcast or the local power company every year. I have no doubt that they paid to have someone place new structure in some areas that they in turn will own but will have to allow leasing to other companies (including AT&T and Comcast). Also by Google getting favorable deals with the local governments that wish to put Google fiber in they also open those deals to the other providers.

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