July 27, 2012

Google Delivering low cost gigabit per second fiber internet profitably

Gigaom - Google launched its fiber to the home with gigabit speeds are aimed at consumers only. The search giant’s fiber network, which will cost $70 for Internet only and $120 for fiber plus TV, is a killer wrapper for Google’s cloud, consumer and tablet products, some of which will be included in the fiber and TV package.

Technology Review reports that Google's vice president of access services, says the Internet service will have no monthly volume caps or overage charges.

Several Google executives at the event were very clear that delivering gigabit internet access over fiber for $70 a month (and even free 5 Mbps fiber) is a business that will not only help advance Google’s consumer goals, but also make it money.

“There’s no sense selling a product at a loss,” said Google CFO Patrick Pichette (just look at Google’s Nexus 7 tablet). “But it’s not only about profits, it’s about changing the access costs.” His goal and Google’s goal is to bring the same efficiencies that have helped create cheaper, smaller and more powerful computers and create a cost and improvement curve for broadband access that resembles the curves for compute storage, as the chart below illustrates.

How Google cuts costs to below $300 per home to install

Delivering broadband is a capital-intensive business, with Verizon spending $23 billion to spread its fiber to the home service to 17 million homes. Analysts estimate that it cost Verizon roughly $670 to run fiber past each home in its footprint. That cost varies depending on a huge number of factors, ranging from how far apart homes are to whether or not Verizon could string fiber from telephone poles rather than bury it.

Google makes its own gear: From the infrastructure on the back end to the TV and Wi-Fi routers in the home, Google has built its own stuff. Most carriers rely on outside vendors to sell them networking gear and even set-top boxes. However, like Iliad, the operator in France that provides the Free mobile and wireline network, Google has built its own equipment.



Google has already strung cable on power lines throughout Kansas City and lowered those costs by working with the local utility and AT&T to get access to the utility poles without having to pay high fees.

But to reduce the cost of the actual last mile to users’ homes it’s telling people in Kansas City that if they want to be the first to get fiber, they’ll have to convince their neighbors to sign up. The goal is to get a critical mass of between 5 percent and 25 percent of the homes in a given neighborhood (Google calls it a fiberhood) committed to signing up for Google Fiber before ever sending out technicians.

Google will use QR codes and the Google Play store to change your relationship with set-top boxes and routers : I’ve already covered the cost savings at the core network and the last mile access, but the final place Google is shaking things up is in the home. Customer premise equipment is the bane of the ISP industry. Those boxes are expensive so many cable providers and telcos rent them to users, which drives users nuts. Users also are slow to update the devices, which can limit the type of services ISPs can offer and in many cases force a technician to come out and install them.

Google has built its own hard drive to act as a DVR, a TV box to provide channels and a network box that acts as a modem and provides Wi-Fi connectivity in the home — cutting out traditional providers such as Arris, Scientific Atlanta (Cisco) and others that make such gear. Medin says that those boxes will have a QR code that a technician will scan. The box then sends its activation information to the cloud and the box is now provisioned and activated for that customer. Eventually consumers will be able to do this for themselves, perhaps after they order a box on Google’s Play store.

Google delivers a gigabit per second to the home at a profit. Granted, that profit might not be as large as the broadband profits that Comcast or AT&T currently enjoy, but it’s a profit. And hopefully regulators and average consumers will look at what Google is doing and ask themselves, “Why are the Comcasts and AT&Ts of the world complaining about how much it costs to serve up broadband when Google can deliver 100 times the traditional ISP’s top speeds for the same or a lower price.”

Google makes 80% of all internet advertising. If Comcasts and AT&Ts of the US do respond with radically lower price then Google wins with more internet advertising. If they do not respond then Google will roll out beyond Kansas and win with profitable Gigabit per second internet fiber.

Google own a lot of dark fiber so Google can deploy nationally with an integrated network, hardware (they make their own routers etc...), and internet advertising solution.

Pricing details

There will be three packages available to Kansas City residents, all of which will require a $300 connection fee to help cover the cost of connecting the home to the fiber infrastructure:

Google Fiber+TV: This package includes symmetrical gigabit (the same broadband speeds on the upload and download side) speeds as well as the newly launched Google TV product, which includes local channels, integration with YouTube and Netflix as well as what Google calls “fiber channels.” It doesn’t sound like this package involves traditional pay TV channels such as ESPN or Disney.

The package includes a Nexus 7 tablet, which will be used a remote control for the TV, although residents will also get a traditional Bluetooth remote control as well. Google will also release an iOS app for controlling the Google Fiber TV product on iPhones or iPads. A variety of sleek, black boxes such as a Wi-Fi router and a 2-terabyte storage box will also come with this package as well as a free terabyte of storage in Google’s cloud locker, G Drive. The total cost for this package is $120 per month and if customers sign a two-year contract Google will waive the $300 connection fee.

Google Fiber: Gigabit connection only package that includes the free terabyte at GDrive as well as a Wi-Fi router. This package costs $70 a month and for users who sign a 1-year contract Google will waive the $300 connection fee.

Free “average” Internet: Google will offer 5 Mbps download speeds and 1 Mbps upload speeds for free to any household in the fiber footprint. Those homes can’t waive the construction fee ($300 one time), but Google will let them pay $25 a month if the sign an annual contract.

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