February 05, 2013

Cable companies make 97% margin on internet services and have no incentive to offer gigabit internet

The cable distribution giants like Time Warner Cable and Comcast are already making a 97 percent margin on their “almost comically profitable” Internet services, according to Craig Moffet, an analyst at the Wall Street firm Bernstein Research. As Levin points out, “If you are making that kind of margin, it’s hard to improve it.” And most Americans have no choice but to deal with their local cable company.

UPDATE - Nextbigfuture has coverage of where the current US gigabit internet deployments are being made and the companies and organizations behind them.

Google fiber is mostly deploying in February and April of this year in Kansas. There are some areas that already have installation in progress.



Confirmation of Lazy Money Grubbing Evil

While Verizon operates the fiber network serving the largest number of home subscribers in the nation, the company is backing off from installing additional U.S. fiber connectivity. The company’s fiber service, called FiOS, offers basic service starting at 15 megabits per second (which can be upgraded in some areas to as much as 300 megabits per second).

Verizon CFO Fran Shammo said in a conference call last fall that there are no plans to expand FiOS beyond those areas. “At this point we have to capitalize on what we have invested,” he said. The basic goal is to sign up more people in the existing service areas, which adds the most revenue without increasing capital costs.

The other cable and telecom companies are focused on capitalizing on existing cable infrastructure, not emulating Google Fiber by building out fiber connections to homes and businesses. In Kansas City, Time Warner Cable in late January (likely in response to Google Fiber’s presence) boosted speeds and lowered prices, offering download speeds of 100 megabits per second for $75 a month. For $199 users can get cable bundled with TV and phone service, with two DVR.

Google Fiber, Gig.U and some City Gigabit Efforts

During an earnings call earlier this month, Google CFO Patrick Pichette said the company plans to finish building out the whole city, on both the Kansas and Missouri sides of the state line, and added that the effort “is not a hobby: we really think that we should be making good business with this opportunity, and we are going to continue to look at the possibility of expanding.”





Universities supporting the Gig.U initiative want to make sure they stay attractive to students and researchers who might want to access data and computing resources, and competitive with other institutions around the world that have such speeds. Their efforts include a deal with a private company, Gigabit Squared, to deliver one-gigabit service in Seattle and Chicago in collaboration with local governments and universities. A similar effort is taking shape among several universities and communities in North Carolina.

A final kind of special case is cities that are taking matters into their own hands. One example is Chattanooga, Tennessee. There, the local power utility in 2010 managed to score $111 million in federal stimulus money to speed up the build-out of a one-gigabit network for a smart electric grid (see “City with Superfast Internet Invites Innovators to Play”). It is now offering one-gigabit Internet access, albeit for about $300 a month, depending what TV service you get with it.

Nextbigfuture covered the google fiber rollout status in fall of 2012.



Other Screwed Up Problems

Even if costs (interest rates for competitors) and legal barriers are lowered, fiber economics won’t work for private companies everywhere—not even for Google. After all, as Levin points out, 80 percent of the cost of running fiber is in the labor, not the fiber and equipment, and not all houses are as closely spaced as the tidy bungalows on Francis Street, where the Carpenters live. “There are a lot of cities where the math wouldn’t work—areas not densely built enough or where construction costs are too high. In California, the environmental permitting provisions make it cost-prohibitive,” Levin added.

Nextbigfuture covered the problems faced by the internet provider startup Sonic.net in California in 2012.

Sonic.net is already building out gigagit fiber in Sebastopol, California.

When it comes to building out infrastructure, from broadband to roads, someone, be it environmentalists or neighbors leery of the project’s components, are bound to raise a fuss. When it comes to better broadband, the cabinets holding the electronics raise the ire of residents who would rather not have refrigerator-sized boxes on their lawns. For example, residents of San Francisco have banded together to sue to stop AT&T’s planned U-verse deployment, which requires more than 700 cabinets to hold the electronics gear be placed around the city.

Jasper says because Sonic.net is deploying fiber to the home, he will use fewer cabinets (he estimates 188) but he’s still worried that San Franciscans will step up to hold up or halt his permits. ATT originally had received its permits, but those permits were halted by the court while this suit goes forward.

Jasper is worried that the suit could take another three to six months, and will hold up his deployment, but he’s hoping that fewer cabinets and a willingness to share Sonic.net’s infrastructure with other providers might make city residents view his cabinets with a bit more favor.

The Press Democrat had an update on Sonic.net from May 2012.

FCC talks about Helping but Still Incompetent and Weak

The FCC says it wants to help. Last month, at a U.S. Conference of Mayors meeting, FCC Chairman Julius Genachowski called for broadband providers and state and city officials to build out at least one “gigabit community” in all 50 states by 2015. And the FCC plans to hold workshops in which broadband providers and state and municipal leaders can find and remove barriers, lower costs, and boost incentives for getting it done. Requests to the FCC for interviews went unanswered last week.

To help keep labor costs as low as possible, Google secured guarantees from the Kansas City government that it would get rapid responses on mundane but important matters like city inspections, access to rights-of-way, and even free rein to run fiber in sewers. Kansas City says it will provide the same breaks to other companies willing to provide similar service. Google also adopted a novel preregistration scheme, which had it start stringing fiber in a given neighborhood only after a certain percentage of residents—5 to 25 percent—committed to the service.


SOURCE - Technology Review, Sonic.net, Google Fiber, Gigaom, ArsTechnica, Wall Street Journal, Press Democrat

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