Unlike the cable companies, AT&T (NYSE:T) didn't dismiss Google's (NASDAQ:GOOGL) foray into rapid-fire Internet and TV fiber connectivity earlier this year as something consumers don't want, don't need, and won't pay for. When Google announced in April that its fiber service was coming to Austin, Texas, in mid-2014, it was already in Kansas City and the surrounding area. AT&T quickly said it wouldn't be far behind.
As for cable, Time Warner Cable's (NYSE:TWC) CFO at the time, Irene Esteves -- she's since been replaced by Arthur Minson -- summed up the stance of the country's second-largest cable provider perfectly earlier this year, saying, "We just don't see the need of delivering that to consumers." No need? With the number of gamers, online-movie-streaming customers, and proponents of video-chat services growing exponentially, that's an almost laughable perspective.
AT&T fiber specs
Not only has AT&T made good on its promise to provide 1 gigabit per second Internet and TV connectivity, it's going to beat Google to the punch in Austin. According to its announcement yesterday, Austin residents will get a slightly scaled down version of AT&T's U-verse GigaPower by December of this year.
Initially, AT&T will offer customers connectivity speeds around 300 megabits per second -- or Mbps -- in December, then up that to 1 gigabit in mid-2014, "at no additional cost." As for pricing, the cost of its fiber connectivity service will announced as AT&T gets closer to the rollout in December. Google is charging customers in Kansas City $120 a month for its Fiber Internet and TV package, and $70 for Internet only.
The move to offer lightning-fast Internet service in Austin is a sound one on AT&T's part. Austin residents already have access to AT&T's U-verse TV, and have since 2007, so upselling its existing customers, let alone bringing on new ones, should be an easier proposition than Google Fiber, which will need to essentially start the customer-building process from scratch.
What's the problem with cable?
As for Time Warner Cable, in addition to not seeing the need to provide fiber service to its customers, it's also rationalized the refusal to play the 1 gigabit per second game by saying there aren't the apps around to utilize all that speed. Of course there aren't; developers aren't going to build games or other large, interactive applications that can't be downloaded by the limited speeds available today with cable.
But you can bet the shortage of apps will change in a hurry once fiber connectivity becomes widely available, thanks to forward-thinking folks like AT&T and Google. Programmers are going to have a field day developing new games and interactive experiences that are currently limited by U.S. consumer's sluggish 31.5 Mbps average peak connectivity speed.
When it's said and done, perhaps the biggest reason Time Warner Cable is downplaying AT&T and Google's fiber efforts is simply profits. According to a Bernstein Research analyst, Time Warner Cable generates margins as high as 97% from its Internet customers, largely because the networks are already built-out. With margins like those, Time Warner Cable and its industry friends have a huge incentive to tell their customers why they don't need fiber.
Personally, I'd like nothing more than to tell my cable Internet and TV provider what they can do with their cable box and "ultra-fast" modem, and apparently I'm not alone. According to Temkin Ratings' 2013 customer service rankings, Time Warner Cable was 234th on a list of 235 companies included in the study. Time Warner Cable was sandwiched between Charter Communications, which came in last on Temkin's list, and Cox Communications, which was tied for 231st.
Time Warner Cable is apparently banking on its customers' reluctance to change, even if it means stepping up to a better, faster -- and in the case of Google Fiber in Kansas City, sometimes cheaper -- alternative to cable Internet (we don't know AT&T's pricing yet). They're wrong, and if AT&T's U-verse GigaPower and Google Fiber are any indication, U.S. consumers may have several alternatives even sooner than many of us had hoped. Bye, bye cable.
Fool contributor Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends Google. The Motley Fool owns shares of Google. 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.