Although 2015 has just begun, it's been a tough year for Google (NASDAQ:GOOG) (NASDAQ:GOOGL). First, the company reported fourth-quarter earnings that fell short of estimates -- Big G blamed currency headwinds, but cost-per-click on Google sites dropped 8% both sequentially and year over year. More recently, The Wall Street Journal outlined Google's YouTube woes. Although the service grosses $4 billion a year, it doesn't contribute to profit in a meaningful way.
Moon shots aside, perhaps no Google product or service has more pent-up demand than Google Fiber Internet. The service -- 5-megabit download/1-megabit upload speeds free for seven years and lightning-fast 1-gigabit upload and download speeds for $70 per month -- is offered in nine metro areas, and Google is looking to expand.
The entrenched oligopoly of broadband Internet providers isn't regarded so highly. Under the old definition of broadband, Comcast (NASDAQ:CMCSA) and Time Warner Cable (NYSE: TWC) control half of the domestic market -- and they are among the lowest-rated companies in the U.S. on customer service. Google, sensing weakness, has a brilliant strategy for getting municipality approval and buy-in. Google Vice President of Access Services Milo Medin put it succinctly: "If you make it [the process to bring Google Fiber to their city] hard, enjoy your Time Warner Cable."
Local bureaucrats determine your Internet service provider
Google has to take this hard-ball approach when dealing with municipalities due to Kafkaesque permitting processes, but this also highlights a key point in the ISP debate: Your city, county, or state government has a huge hand in determining your ISP. And while Google seems to point toward unintentional interference, more recently there has been a concerted effort by legislatures to deny choice.
For example, earlier this year, Republican Missouri state Representative Rocky Miller proposed a bill that would essentially prevent municipalities in the state from offering broadband Internet. Miller reportedly received $4,700 in donations from telecom companies.
Overall, 20 states have some sort of restriction against municipal broadband.
Add the municipal broadband bans and poor permitting process to the oligopolistic gentlemen's agreements, in which ISPs choose not to directly compete in certain regions, and you have a nationwide Internet speed ranked 30th in the world -- a sad statistic considering that the United States essentially created the Internet.
Government-imposed lack of choice on Internet service essentially amounts to a tax
In America, we spend a lot of time talking about taxes. As individuals we seek to legally minimize taxes by using deductions and credits, even modifying our behavior in the process. But for Internet users, government-imposed lack of choice essentially amounts to a de-facto tax considering the Internet is almost essential for U.S. residents.
Last year, Americans paid an average of $55 per month for broadband service. Compare that to the $31 average monthly payment in Hong Kong, which has the fastest Internet in the world. Even worse, Americans paid an average of $3.50 per megabit -- trailing Internet "heavyweights" Russia and Ukraine, where users pay $0.98 and $0.90 per megabit, respectively.
If municipalities are impeding choice willfully or through negligence, and major ISPs can then charge users more than they could in a truly competitive market, how is this different from increased government taxes? Medin has a point that Google doesn't have to deal with uncooperative municipalities, but we as citizens aren't afforded this freedom.