Can Google Expand Fiber's Success?
During a time in which cable businesses like Comcast are already facing pressure from the streaming video industry, the last thing these companies need is a new threat. The fact that the threat is coming from the veritable King of Technology -- yes, I mean Google -- just makes the news all the more unwelcome.
Over the summer, the company rolled out Google Fiber in Kansas City to provide customers with Internet and TV service, throwing in a free Nexus 7 tablet for customers who opt for the top level of service. While recent estimates suggest that a national rollout may be prohibitively expensive in a single phase, the service is immediately cash flow positive to Google, meaning a gradual introduction is an option. Ultimately, Google Fiber is just the latest reason why Google must be in your core portfolio.
The service offers both Internet and TV service through a fiber-optic cable that is installed directly into your home. The service offers upload and download speeds of up to 1 gigabit for only $70 per month, placing it immediately at the top of the heap. In a recent piece, Tiernan Ray referred to the product as a "disruptor," pointing out that the service "is 100 times the speed of a normal cable package for the same price. For another $50, Google will add television service, where it has inked a deal to show Walt Disney content, and offerings from major cable networks."
In terms of equipment, subscribers get a Google Network box that is equipped with four Ethernet ports, high speed Wi-Fi and a build-in firewall. Those who select the TV option also get a TV box that arrives HD-ready, with no additional charges for the enhanced quality. For storage, users are given a full terabyte of cloud storage that can be accessed from anywhere, including when they're away from their home networks. As a bonus, users to subscribe to the highest level of service receive a free Nexus 7 tablet from which to control the entire system. While the service is currently available only in the Kansas City test market, its initial success is getting widespread interest.
Can they build it?
AndroidCentral recently reported that the cost of building out Google Fiber on a national level may be prohibitively expensive: "According to new estimates by Goldman Sachs, it would cost Google a huge amount of money -- about $140 billion -- to roll out the service across the country." Author Andrew Martonik goes on to explain, however, that there is no real need for a national rollout. A staggered release is more in line with not only the cost, but the time involved to install the infrastructure needed to bring the service to customers. The fact that Google Fiber is "actually a profitable business unit for the company" means that it can siphon each new market's profits into additional expansion. This last fact makes the $140 billion price tag somewhat misleading.
While the service is too concentrated at this point to offer a real threat to Comcast, identifying these types of trends early can make the difference when deploying investment dollars. Tiernan Ray also points out that Google Fiber could "be serious competition for the telephone company broadband offerings, such as Verizon Communications' FiOS, and AT&T's U-verse." Both Verizon and AT&T have already become real threats to Comcast in the areas in which their services are available. For both of these companies, the real challenge is also building out availability. When Verizon breaks into streaming video early next year with partner Redbox -- which is owned by Coinstar -- its FiOS service may become even more interesting.
While Google Fiber is likely a few years away from having enough coverage to pose a real threat to Comcast, Verizon, or AT&T, its very presence may cause a shift in the strategies pursued by each. On the speed question alone, Google's competitors must find a way to keep pace if they expect not to be replaced as soon as possible. When this product is combined with all of the other successful ventures that Google is currently running -- search, Android, tablets, Google Apps, and more -- there is no question that this company will remain one of the most influential over the coming years.
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The article Can Google Expand Fiber's Success? originally appeared on Fool.com.Fool contributor Doug Ehrman has no positions in the stocks mentioned above. The Motley Fool owns shares of Walt Disney and Google. Motley Fool newsletter services recommend Walt Disney, Google, and Goldman Sachs. 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.