Why Google Won’t be Lighting Up Your Ground

Google’s 1Gbps FTTH Internet service is getting ready to roll out in Kansas City (MO and KS), and of course the hype is high on this one.  The idea that people could be getting Internet “twenty times” or “a hundred times” faster has obviously captivated journalists, but the truth of the deal is a LOT more complicated.  Anyone who’s experienced Internet service at widely different speeds probably knows that changes in subjective performance rarely match the changes in access speed.

The big question here isn’t whether 1 Gbps Internet is better, though.  The question is whether FTTH is practical, and interestingly Google is answering the question in the same way the market already has.  Look at their Kansas City plans and you see a kind of populist model for red-lining, with the rate of pre-subscription determining the priority for service deployment.  Google is admitting that you can’t offer this stuff everywhere, it has to be in a high-density location (city and suburbs) and it has to have a high enough socio-economic level to generate a respectable sign-up rate.  That’s exactly how FiOS works, and also why AT&T doesn’t deploy FTTH and Verizon does.  Google seems to be admitting that our demand density model of FTTH feasibility is spot on.

That doesn’t make this unimportant, though.  Google’s service will include TV, and as I’ve pointed out before it’s linear channelized delivery that makes access of any sort profitable these days.  So Google might be answering an important question; are there areas where demand density is high enough that an OTT giant like Google (or Apple, or Amazon) might make a reasonable profit on FTTH?  I’ve tried to run the model on that one, without success.  There are just too many variables in the assumptions, and I hope that Google removes some of the uncertainty one way or the other.

The problem is that Google’s motives here are almost certainly NOT to become a FTTH provider.  In the past (with mobile spectrum bids, for example) Google has used the threat of entering the access market to beat on carriers, as leverage in net neutrality fights and to reduce the chances the operators would impose usage pricing on residential wireline broadband.  The idea that Google can somehow do what a telco can’t because they’re “an Internet” company is the opposite of the truth.  Google’s ROI requirements are about half-again higher than a telco’s would be so if FTTH doesn’t pay off for AT&T it would be less likely to do so for Google.  That means that even if Google finds that pockets of high-speed FTTH can be deployed at a marginal return, they’re more likely to prove that there’s no total-market business case for it in the US than the other way around.

Australia may also be proving that point.  There, the national carrier (Telstra) has ceded its access infrastructure to a not-for-profit “public” corporation that will build out access and lease it to all comers.  The theory is that this would enable competition, but of course the only competition occurs higher than the access layer and that doesn’t promote building out FTTH or anything else.  Telstra recently increased pricing to offset losses from the transaction, and the Australian model demonstrates what I think is a crippling problem—it kills the possibility of cross-service subsidization.

If an operator can push a fat glass pipe to a home and sell good stuff over it, there’s an incentive to accept marginal profits or even a loss on the pipe itself.  If the pipe-pushing occurs in one company and the profit in another, there’s no mechanism for natural cross-subsidies.  To promote the fiber you’d have to increase the payments from the overlay carriers to the fiber provider, and now you’re starting to do settlement on the Internet.  That would be good if it were done overall, but to put it into place in one country and one part of the network isn’t likely to be workable.  Net?  Google is probably going to show us what we already know, which is that somebody willing to lose money can push glass pretty much anywhere, but those looking for a profit on investment are unlikely to make the ground glow under you.


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