The Beginning of the End of AT&T's and Comcast's Reign

Fairly recently, Google  (NASDAQ: GOOG  )   (NASDAQ: GOOGL  ) entered the Internet service providing industry with Google Fiber, an Internet service that is roughly 100 times faster than traditional broadband. At $70 per month, it's a bargain compared to the industry average of $65 per month for lower-quality service. Although it's only available in four cities in the U.S., data suggests it could spread like wildfire and wreak havoc on the profitability of current industry titans Comcast  (NASDAQ: CMCSA  )  and AT&T  (NYSE: T  ) .

Source: Google

Kansas City experiment has been wildly successful
Google Fiber was first installed in Kansas City, Kan. in 2011. According to an article from the Wall Street Journal, a whopping 42% of households surveyed in Kansas City currently use Google Fiber.  

Google Fiber could be huge
Although it is nearly impossible to quantify the rate at which Google can expand its new product, it seems the new service has some serious growth potential. Google is currently prospecting in 34 cities around the country. Coming up with fancy projections would be silly at this point. But, it's safe to assume that if Google can offer a superior product at a comparable price to its competitors, the growth potential could be astronomical.  

Many people don't like their current Internet options
If the majority of people were perfectly happy with their current Internet service providers, it would be one thing. But, satisfaction surveys suggest that many people would love to drop their current service.

In a 2013 J.D. Power survey, overall customer satisfaction among Internet service providers was rated 683 on a 1,000 point scale. The American Customer Satisfaction Index released a report, also in 2013, where ISP's received the lowest customer satisfaction ranking of any industry in America. 

Clearly, there is a window of opportunity for Google to enter this near-monopolistic market. 

Google's new service could mean trouble for AT&T and Comcast
For the heavy hitters in the ISP industry, Comcast and AT&T, Google's new service could harm their revenue and ability to generate profit. In 2013, Comcast generated 25% of its revenue from high-speed Internet service, and AT&T's wireline data segment accounted for 26% of the company's revenue in 2013. 

Although many of Comcast's customers may have been displeased with its service over the past five years, shareholders were probably quite pleased. Since May 2009, Comcast stock has nearly doubled the S&P 500 Index. AT&T stock is another story, however, generating about one-third the return of the S&P 500. 

If Google's new service catches on, the negative effect on the market share and profitability of Comcast and AT&T could be huge. But, of course, neither company will go down without a fight. 

In fact, AT&T has responded to the threat. Recently, the company announced that it may begin to string its fiber optic lines directly to homes to match Google Fiber's superior speed. The company also announced plans to build an all-fiber network in Austin, Tex. and charge customers $70 per month (Google Fiber is also $70 per month).

What all this means for shareholders of Comcast & AT&T
Regardless of how it all plays out, Google Fiber should be seen as a negative thing for shareholders of Comcast and AT&T. Even if the two companies are able to revamp their current infrastructure to match Fiber's speed, their market share and profitability will likely suffer.

Your cable company is scared, but you can get rich
You know cable's going away. But do you know how to profit? There's $2.2 trillion out there to be had. Currently, cable grabs a big piece of it. That won't last. And when cable falters, three companies are poised to benefit. Click here for their names. Hint: They're not Netflix, Google, and Apple. 

 


Read/Post Comments (18) | Recommend This Article (14)

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 14, 2014, at 2:13 PM, gwtx2 wrote:

    What about Verizon? I would think they also could be hurt by Google fiber. The current ISP's (at&t, Comcast and Vzw) only care about making their shareholders happy. Screw what the customer wants/thinks/needs. Google is doing it right, making a profit and pleasing customers.

  • Report this Comment On May 14, 2014, at 3:17 PM, djmellok wrote:

    @ $70 per month I doubt it lol that's expensive compared to what broadband isp's offer especially seeing that most people wont need those extreme speeds once you hit a certain point its more about bandwidth than actual speed ... it could hurt the business sector though if they offer commercial businesses the same rate

  • Report this Comment On May 14, 2014, at 3:41 PM, grabacontroller wrote:

    I don't think that companies understand the concept of pleasing consumers. T-Mobile is doing much better than Verizon and AT&T and that makes them gain more subscribers and turning that into a profit. Keeping subscribers is the best thing to do. Coming up with new ideas that hurt the consumer isn't right and will hurt them in the long run.

  • Report this Comment On May 14, 2014, at 3:47 PM, SCHIMPFMIKE wrote:

    YEAH, COMCAST IS A RIP OFF

  • Report this Comment On May 14, 2014, at 5:12 PM, GeorgePolitico02 wrote:

    People interested in Comcast's dominance of the Internet and people interested in the subject of Internet Neutrality should read Susan Crawford's book "Captive Audience. The Telecom Industry and Monopoly Power in the New Gilded Age."

    Crawford is opinionated, but she references everything she says. She claims that Internet Service Providers have little incentive to improve performance or lower rates and that, as a result, the US is far behind most industrialized countries in Internet performance and access. We are not only behind South Korea and Sweden, but falling behind Portugal and Russia.

    This poor performance will hurt important projects in medical consultation, public education, and so on, and eventually diminish America's competitiveness.

    It is always best to get both sides of any public policy dispute, but Crawford tells one side of the dispute in convincing fashion.

  • Report this Comment On May 14, 2014, at 6:35 PM, 12sebastian wrote:

    Comcast offers customers terrible service. We call them almost daily because our service (internet and cable) is awful. We switched our att service for cellular to consumer cellular and are so glad. Consumer cellular is wonderful. Their customer service is terrific. When we move we will not use Comcast. I would rather not watch TV than go through again what we have dealing with. I hope Google can overtake Comcast and ATT.

  • Report this Comment On May 14, 2014, at 9:37 PM, okiedodge wrote:

    AT&T eats balls. Their customer service is by far the worst. If Google Fiber ever comes to Oklahoma CIty, You can count on AT&T AND Cox will get their backsides handed to them.

    AT&T has had it too good for too long. If Google ever gets into cell service, you can kiss AT&T gone forever

  • Report this Comment On May 14, 2014, at 9:53 PM, JJ82 wrote:

    Anything that hurts Communistcast is a good thing.

  • Report this Comment On May 14, 2014, at 10:26 PM, BxBruce007 wrote:

    My internet service is <$20/month. Why would I want to pay three times as much?

  • Report this Comment On May 14, 2014, at 10:37 PM, qtothed wrote:

    I think you need to check your numbers about Comcast's profit margin regarding internet service. To provide service to a customer it costs Comcast on average about 50 cents a day. So about 15.00 a month. As you stated in your article, monthly costs for subscribers 50.00 to 65.00. Internet service is their biggest money maker.

  • Report this Comment On May 14, 2014, at 10:49 PM, Wopalongcassidy wrote:

    I worked for AT&T back in the late 90s installing what was supposed to be fiber optic. Instead we ran in broadband and an empty conduit for the fiber optic. This was in areas of Orange County California. The company started as AT&T then turned into Netcon, the Lucent Technologies. Then we all got laid off and replaced by non-union company's.

  • Report this Comment On May 14, 2014, at 11:22 PM, cri33 wrote:

    gwtx2 ..the board of directors of any publicly held company is under a legal obligation to do what is in the best interest of their shareholders. Sometimes that coincides with offering great value for customers and sometimes it does not. Even if Google's plan is a great one for consumers right now I predict it will won't last forever.

  • Report this Comment On May 15, 2014, at 3:38 AM, DiverMike wrote:

    If for no other reason than the elimination of the mandatory telephone bundling that in turn causes about $20.00 a month in taxes and surcharges, Id go for it. Right now my Verizon Fios bill with nothing exceptional added runs about $150 a month on average. Yet if I dump the phone part of it, the combined a la carte price for internet and TV is even higher!

    Google hurry up and get to Long Beach, California. Offer internet and affordable television and you'll get 90% of Verizon's customers overnight. The other ten percent are the ones we always heard abut in school that never get the message. Best of luck!

  • Report this Comment On May 15, 2014, at 5:46 AM, Bluez420 wrote:

    You complain about AT&T and commiecast you should try the isp's here in the Philippines. I understand though, I used to live under Commiecast's thumb in both Washington and Oregon, I know their service sucks big donkey__lls. Here in the Philippines all the isp's are privately owned corporations, so how much of a backside screwing you think these people have.

  • Report this Comment On May 15, 2014, at 9:06 AM, mac2j wrote:

    This article should be in the Onion or something. OMG two words : Rainbow Bunny = WIN. I particularly liked this line "Coming up with fancy projections would be silly at this point. " = I made all of this up and I'm too lazy to even fake data to back it up.

  • Report this Comment On May 15, 2014, at 9:39 AM, PeterBScott wrote:

    A substantial part of the problem with the big US ISPs is they are also the cable TV providers. They see the internet as a threat to their cable TV business.

    If Google Fiber were available in my area, I would gladly pay $70 for that level of service. I could then drop my cable TV service and use Hulu & Netflix to stream TV shows. A digital antenna could be used for local new & sports.

    If ISP services on par with Google Fiber were available to the majority of American markets, it would not be long before HBO, Showtime, etc. would start to offer their subscription services for streaming directly to customers.

    High speed fiber internet makes the Cable TV model obsolete. Comcast, Verizon, AT&T all know this. That is why they are not in a rush to offer services of quality Google Fiber.

  • Report this Comment On May 15, 2014, at 10:50 AM, mobycat wrote:

    @djmellok, $70 is NOT expensive compared to the regular ISPs. To get the speed Google is offering, the ISPs would probably be charging $250+ per month.

    $70 - 1000Mbps for google fiber.

    $50-60 - 25Mbps for regular ISPs.

    Now... if you go for their base services...

    $30-40 - 5Mbps for regular ISPs.

    FREE - 5Mbps - Google Fiber.

    Google also gives you 1TB of cloud storage for that $70. Good luck getting that from an ISP.

  • Report this Comment On May 15, 2014, at 12:28 PM, clamo wrote:

    bring it on. need more competition.

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