Slovakia may conjure up an image of dated Soviet-era buildings, but it offers a faster median broadband speed than in America. Greece, always seemingly embroiled in economic crisis, also beats America, as does the pastoral New Zealand, neighbor Canada, oft-criticized as too socialist France, and the old empire the United Kingdom. In fact, among the OECD countries, America comes in pretty far down the rankings in terms of broadband speed:
For the country that invented the Internet, it seems we've fallen behind. However, Google's (NASDAQ:GOOG) (NASDAQ:GOOGL) expansion of Google Fiber could raise America's broadband speeds by orders of magnitude. Currently, Google Fiber is only offered in three cities, but it's expanding quickly, potentially to your hometown.
What do you need to know about Google Fiber?
1. It's fast and just as cheap.
Currently available in my local area with Comcast (NASDAQ:CMCSA) is a 25 Mbps Xfinity Internet package that starts at $30 per month for a year, then is upped to between $43 and $67 per month. The fastest available package offered is 105 Mbps for $115 per month, or the slowest at 6 Mbps for $50 per month.
With Google Fiber, customers receive a 1,000 Mbps connection for $70 per month. You can add television for an extra $50 per month, or get free Internet (with a one-time $300 construction fee) that offers 5 Mbps.
Google itself has trouble justifying having such a fast connection under their Gigabit plan. And that's also been Comcast's response to interest in Gigabit Internet speeds, as Vice President David Cohen wrote in an editorial that "most websites can't deliver content as fast as current networks move." However, web-based applications must be built to work with and are constrained by existing infrastructure -- not the other way around. And with Netflix unveiling Breaking Bad episodes in super HD, demand for faster Internet is an inevitability.
2. It's creating competition where there was none.
When building out networks, cable companies have to negotiate with governments to use public rights-of-way with cables strung on utility poles and through the ground. These local franchise agreements last several years, and after one company has built out into an area, competing firms are unlikely to attempt to enter a market already served by another company. Unlikely, but if a company has big pockets and broad ambitions like Google, not impossible.
With Google's new broadband assault, traditional broadband providers have promised their own service upgrades to compete. After Google announced its fiber service in Austin, AT&T announced plans to build its own fiber Gigabit network to serve the area with the caveat that it anticipated the same terms, conditions, and incentives that Austin offered to Google. And Time Warner, while not offering gigabit speeds, is upgrading its top speed in Austin to 300 Mbps.
3. Google will get an unprecedented flow and control of information.
There is a much deeper value for Google than just Google Fiber's monthly charge. Google's business plan is built on increasing the use of the Internet. The more Internet used, the more ads, clicks, and searches will be done. But even more importantly, Google can increase the efficiency of its advertising by harnessing all of the information it will be able to gather.
Like any web company that offers free services, Google collects a bunch of information to serve its customers ads. It builds a profile of each user and records interests from searches and websites visited (which you can view here). Google Fiber's terms state that it will associate your Google Fiber TV use with your Google account, but it will not associate other information that flows through your router with your account unless consented or by law. Even with anonymized data, Google can build even better advertising profiles for hypothetical users to become even more exact in its personalized advertising.
Benefits for users, progress, and stockholders
While only in three cities and with expansion plans for nine others, Google Fiber is early in its rollout. As traditional service providers and cities react, though, the effect will be felt throughout the country. And as Google learns more about being an ISP and about its users, it will be able to add more to its bottom line beyond the monthly service fee.
Dan Newman has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Google (A and C shares) and Netflix. 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.
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