Right now the lucky few in Kansas City, Missouri and Kansas City, Kansas have been reacting enthusiastically to the new service and it’s estimated that the search giant will end up spending roughly $84 million to build out the infrastructure in those areas, roughly $500 to $700 per subscriber.
Those numbers do cause analysts some concern going forward as that pegs the cost of a nationwide build out at $11 billion, they’re ignoring that Google’s subscriber numbers are likely to grow over time as more people find out about the service. The $84 million Google is spending in the Kansas City area will “pass” 149,000 homes with roughly 8 percent market penetration. What will determine the future of the service is how many of those remaining homes later opt to subscribe.
Google will want to work on pushing down the per home connection costs, which now sit at $464 for data and $794 for the broader range of services which include pay TV services. Some of those costs are recouped by the current $300 connect charge.
Based on the numbers for the first two cities, analysts are skeptical Google can make a go of it, particularly considering many areas will present regulatory challenges besides the logistics of getting fiber to potential customers.
Personally, I don’t see Google giving up that easily. For one, though $11 billion may seems like a huge amount of money to some companies, it’s good to keep in mind that Google makes $14 billion a quarter. Stretch those numbers out over five to seven years and the cost is not insurmountable. Also, Google might decide not to go after a nationwide rollout and instead might focus on high density urban areas where they can expect a higher percentage of market penetration.
I also give Google some credit for gaining economies of scale as they roll out more infrastructure and learn from past mistakes. Add the incoming recurring revenue as the subscriber base increases to gains in efficiencies and the numbers start to swing more in the big G’s favor.
Rumor has it that Austin, TX is the next city scheduled for the service offering and it will be interesting to see if the rollout costs remain the same or if Google can start finding ways to push costs lower. I consider Kansas City a low penetration market for high speed fiber and predict that Google’s Austin subscriber numbers will be off the charts.
The competition is also not sitting still and waiting for the gigabit fiber wave to crash over them. There are reports that in areas where Google Fiber is rolling out that cable companies are, at last, giving customers a better deal. While cable can’t compete with fiber in terms of raw speed, the cable connection most consumers have if fast enough for 95 percent of what they do online. Many may not feel much compulsion to switch, especially considering the $120 price tag is roughly on par with what they’re currently paying.
Even it was twice the price, I would still jettison cable the day Google Fiber was available and we get extended cable for free where we live now. That’s how much I personally hate the cable industry; one in particular and you all know who I’m talking about. As an industry, they deserve to die.
Either way, we’ll know more about the future of fiber after the numbers come in from the Austin roll out, provided they really are the next city in line. Stay tuned.
Edit: According to Engadget AT&T just made a terse announcement that they are also bringing gigabit fiber to Austin, Texas. Coincidence? I think not. Seems like cable companies aren’t the only ones interested in discouraging Google from moving ahead with their plans to build out their fiber infrastructure. Very interesting.