Google and AT&T Look to Dominate High-Speed Internet While Crushing the Competition

Google and AT&T look to prove that two's company, while Charter, Comcast, and others are the crowd.

Apr 23, 2014 at 1:05PM

Initially, it looked as though Google's (NASDAQ:GOOG) (NASDAQ:GOOGL) Fiber was going to be a runaway service, stealing market share and destroying all broadband and Internet service providers that stood in its way. However, AT&T (NYSE:T) has emerged, a company that refuses to roll over and play dead while Google steals its one true growth driver. As a result, that old saying, "two's company, three's a crowd" might definitely apply to this space. Or, in this case, big service providers like Comcast (NASDAQ:CMCSA) and Charter, along with small ones such as Cincinnati Bell (NYSE:CBB), are part of the Google and AT&T crowd.

The makings of two great service providers
Google Fiber has been wildly successful in its infancy. The service provides Internet at one gigabit per second, Gbps, which is 100 times faster than average broadband. Initially, Google rolled out the service in Kansas City and Austin, Texas, but due to better-than-expected success, the company recently announced plans to launch Fiber in 34 cities. 

Initially, Google Fiber was seen as a major threat to AT&T; its U-Verse GigaPower has speeds of 300 megabits per second, Mbps. Therefore, Google's service was superior, and as a real slap in the face, Google has been using infrastructure owned by AT&T and other telecom companies to save on costs associated with Fiber by installing its hardware on existing utility poles. Also, The Information recently reported that Google is planning to offer voice and TV as a mobile virtual network operator, or MVNO, meaning it will use the infrastructure of peers to offer service.

In response to Google's aggressive plan, AT&T is making upgrades to its GigaPower, claiming that it, too, will offer speeds of up to 1 Gbps later this year. The estimated costs for both Google and AT&T to achieve this feat on a nationwide scale is believed to be north of $20 billion per company. However, Google has been able to save on costs by using both existing networks and requiring that customers sign up prior to the network being built, thus allowing the company to gauge demand.

The boosted speeds of AT&T's GigaPower would level the playing field, and on Monday, the company announced 100 cities in 21 metropolitan areas as candidates to launch its improved service. Therefore, like Google, AT&T is moving fast, showing a sense of urgency to protect its 20%-plus annualized growth in a segment that accounts for 10% of its total revenue.

What does this mean?
While some investors would like to believe that AT&T's response to Google is bad news for the technology juggernaut, history proves the market is more than big enough to support two heavy-hitters. To no surprise, this 1 Gbps speed was originally priced at a premium, but at $70 per month, and with two players in the game, pricing should stay competitive and on par with broadband services that are many times slower.

This means bad news, perhaps even a doomsday scenario, for the hundreds of small Internet, voice, and TV providers, along with large companies that offer such services at much slower speeds. Particularly, Comcast, Charter, and smaller players like Cincinnati Bell could be in trouble.

Comcast, following its recent acquisition, has approximately 30 million subscribers, making it the largest voice, Internet, and TV provider in the U.S. However, its Internet services range from 25 Mbps-50 Mbps for $40-$50. Therefore, service from Google and AT&T's is about 20 times faster for less than twice the price. With more than 80% of Comcast's revenue coming from voice, video, and Internet last year, it could be in trouble as Google, and now AT&T, begin to impose on its turf.

Charter is in the same boat; its $30 Internet package is usually bundled with phone or TV, but at 30 Mbps, it's far slower than services being offered by Google and AT&T. Then, there are countless small regional companies like Cincinnati Bell, which offers Internet service at speeds of 100 Mbps, a speed that has allowed the company to rapidly grow its fioptics division.

Cincinnati Bell's fioptics segment is its 100 Mbps Internet business, and in 2013, it finished with 79,900 customers for a growth rate of 40%. The company recently sold its wireless business for $210 million, and now plans to invest that money in fioptics in an attempt to grow its 29% network penetration. The problem is that Cincinnati is a city that has already been well-developed by AT&T, and a GigaPower or Fiber build out could put a wrench in Cincinnati Bell's plan.

Final thoughts
Comcast, Charter, and smaller companies like Cincinnati Bell are directly dependent on their Internet, TV, and phone services, so there is no hedge when investing in these companies against the tidal wave of AT&T and Google. With that said, there will be some consumers who won't care about the accelerated speeds, and will remain with their current provider.

However, with Internet-connected devices becoming a larger part of our daily lives, investors must realize that companies like Charter and Comcast will lose customers to their faster peers and will have a hard time attracting new subscribers if their services are not significantly discounted.

In regard to Cincinnati Bell, it too will likely struggle, but being built with fiber optics and a copper network, there might be some synergies for a company like Google, especially if Google tries to save on the costs of a fiber network via acquisitions, which could be a reality for smaller fiber-related companies like Cincinnati Bell.

Nonetheless, Google has the opportunity to build a massive multi-billion dollar business that's similar in size to Comcast, and by using existing networks. For AT&T, its GigaPower service ultimately means its 20%-plus growth is sustainable, and that it has a better edge against its peers. The bottom line is both companies look well-positioned for explosive growth in this arena, and the market is large enough for both to succeed.

Are you ready to profit from this $14.4 trillion revolution?
Let's face it, every investor wants to get in on revolutionary ideas before they hit it big. Like buying PC-maker Dell in the late 1980s, before the consumer computing boom. Or purchasing stock in e-commerce pioneer Amazon.com in the late 1990s, when it was nothing more than an upstart online bookstore. The problem is, most investors don't understand the key to investing in hyper-growth markets. The real trick is to find a small-cap "pure-play" and then watch as it grows in EXPLOSIVE lockstep with its industry. Our expert team of equity analysts has identified one stock that's poised to produce rocket-ship returns with the next $14.4 TRILLION industry. Click here to get the full story in this eye-opening report.

Brian Nichols has no position in any stocks mentioned. The Motley Fool recommends Google (C shares). The Motley Fool owns shares of Cincinnati Bell and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers