If Google can pull it off, there's good reason for cable companies to start worrying – as investors already have, with Comcast stock dropping $1.96 today (Feb. 19) and Time Warner down $0.68. Google's plans start with free 5 Mbps service, $70/month Gigabit Internet-only, and $120 Gigabit Internet plus TV (which includes 200 HD channels, DVR, and on-demand content including Netflix). All plans have a $30 hook-up charge.
However, if you start adding on premium channels that's going to cost another $10 to $40 a month; bringing it close to the $180 I'm currently paying Comcast for TV, Internet and voice, and making it a trade-off for some customers.
So, what are we to make of this besides shorting Comcast stock?
One piece of intelligence that the Google Fiber launch reveals is that despite predictions that over the top (OTT) content services are the future, operating the underlying network infrastructure is still a competitive advantage.
Another message here from these tea leaves is that wireless networks still don't match the stability, reliability and performance of wired networks. And the exponential growth of mobile broadband use just underscores the importance of the wired backhaul supporting it.
I have a good chance of watching Google Fiber unroll first-hand because I live in one of the cities that's in talks with the Internet giant to one of those 34 "gigabit cities" – Santa Clara, CA. And although nothing's cast in concrete yet, Santa Clara enjoys some unique advantages as a showcase for Google Fiber – and not just because I'm an unashamed city booster.
The first and biggest reason is that the city owns its utility company. That means the city owns the poles and conduit where Google needs to run its fiber. That will expedite permitting and construction operations. (And because Santa Clara generates much of its own electricity, it costs about a third less to turn your TV on or charge up your tablet.)
The second advantage that Santa Clara offers is that a lot of the infrastructure Google Fiber needs is already in place. The city already has an extensive dark fiber backbone and it's already in business selling excess capacity to businesses and service providers.
Originally developed to link the city's electric substations, the fiber backbone was deliberately over-built and has been expanded over the last 15 years. The network not only covers Santa Clara's industrial corridor, it also reaches into residential neighborhoods to schools and fire stations. And the city already has a municipal WiFi network that was built out to support its smart meter system.
Santa Clara also has the 49ers high-tech Levi's stadium opening this summer. But Comcast just signed a 10-year deal to provide fiber throughout the stadium, as well as free WiFi for fans, so it's hard to see a Google opportunity there.
On the other side of the picture, there are questions.
One is whether Google really "gets" the level of performance required for consumer telecom service. Most of us still "watch TV," and regardless of what we want to watch on that TV, we have expectations for quality that aren't matched by, say, YouTube. People might be willing to deal with Gmail outages, but not TV outages during the Super Bowl.
And then there's history.
About 10 years ago, Google built a free, public WiFi network in Mountain View CA, and, at the time Google was widely expected to rollout similar networks in other cities and become a major ISP. As we know, that didn't happen and Google's public WiFi network dwindled into obscurity -- one reason being that it couldn't handle the traffic.
And then there's Google's dismal history with voice services, first with GrandCentral in 2008, and later with softphone Gizmo5. And then there was the short-lived marriage to Motorola.
However, Google is certainly investing a lot of marketing into this rollout. So I'll be watching with interest.
]]>The reality is that nobody stays in business selling something for less than it costs -- despite the self-indulgent fantasies of dot-com startups. And in the brave new always-connected world, devices (other than Apple products) to connect may be dirt cheap, but the infrastructure that makes it all work is anything but. AT&T isn't the first carrier to observe that more is less when it comes to iPhone profits. As smartphone subscribers eat up rich media and interactive content, operational costs grow faster than ARPU.
Selling the iPhone hurt Southeast Asian carrier SingTel's operating margin by about 4%, the company told Reuters a year ago. Scandinavian carrier TeliaSonera reported a 20% decline in Danish ARPU (average revenue per user) in the two years since introducing the iPhone -- from US$38.35 to US$30.39 - according to the same report.
AT&T's move points to the future. Once upon a time, minutes were a relevant measure of telecommunications infrastructure cost. When minutes became irrelevant, that didn't mean that the infrastructure was free. Today bandwidth is the meaningful measure of infrastructure cost and average profitability per user (APPU) is more important than ARPU. The pricing model will change simply because businesses that can't sell their services at a profit won't be in business to offer high quality all-you-eat data plans.
And that will have another impact. When network operators' returns match investment, the infrastructure business - the pipe - is going to be a lot more attractive. Which, no doubt, is part of the reasoning behind Google's 1-Gbps FTTH network "experiment" that the Internet giant announced last February. Certainly, Google stands to benefit from increased use of its Web-based applications, ad revenue from the new network, and control of the underlying delivery infrastructure.
But the bottom line is that Google sees a business opportunity in becoming a traditional telecommunications company. And why not? One of the greatest beneficiaries of VoIP disruption of voice communications business was Comcast Cable - now the 3rd largest US telephone company.
For more analysis of AT&T's new pricing, read media sociologist Shelly Palmer's June 6 post, Understanding AT&T's New Limited Data Plan.
In the last two years, Google has made several forays in the voice market. After buying VoIP startup GrandCentral in 2008, Google went on to buy the peer-to-peer softphone Gizmo5. Google did nothing with these investments; suspending new customer signups for both services at the end of 2009, with the explanation that Google was conducting extended beta tests before "re-launching" the services.
Google has undoubtedly studied the history of Internet companies in VoIP; and AOL's, eBay's, and Yahoo's VoIP missteps paint an uninspiring picture, as Tom Keating noted last year.
There's a fundamental lesson: operating a telephone company has a very different imperative than operating an Internet company: subscribers have to get a dial tone when they pick up the phone - 100% of the time.
Meeting that imperative is what legacy telephone carriers are good at: performing a well-understood and clearly defined operation in real-time, with near-absolute reliability. How hard it is to achieve these goals simultaneously can be measured by how little Internet software pioneers Yahoo, AOL and eBay advanced the VoIP technology that they purchased.
Google certainly has the financial resources for building infrastructure and operations with "five nines" reliability. And Google has one advantage over legacy telecoms. It can start on Day One with the best technology - Google doesn't have to figure out how to upgrade millions of miles of copper wire.
It will be interesting to watch. Any bets? ]]>In the last two years, Google has made several forays in the voice market. After buying VoIP startup GrandCentral in 2008, Google went on to buy the peer-to-peer softphone Gizmo5. Google did nothing with these investments; suspending new customer signups for both services at the end of 2009, with the explanation that Google was conducting extended beta tests before "re-launching" the services.
Google has undoubtedly studied the history of Internet companies in VoIP; and AOL's, eBay's, and Yahoo's VoIP missteps paint an uninspiring picture, as Tom Keating noted last year.
There's a fundamental lesson: operating a telephone company has a very different imperative than operating an Internet company: subscribers have to get a dial tone when they pick up the phone - 100% of the time.
Meeting that imperative is what legacy telephone carriers are good at: performing a well-understood and clearly defined operation in real-time, with near-absolute reliability. How hard it is to achieve these goals simultaneously can be measured by how little Internet software pioneers Yahoo, AOL and eBay advanced the VoIP technology that they purchased.
Google certainly has the financial resources for building infrastructure and operations with "five nines" reliability. And Google has one advantage over legacy telecoms. It can start on Day One with the best technology - Google doesn't have to figure out how to upgrade millions of miles of copper wire.
It will be interesting to watch. Any bets? ]]>