Google’s Little Fiber Experiment Could Cost Over $1 Billion

http://blogs.barrons.com/techtraderdaily/2010/02/10/googles-little-fiber-experiment-could-cost-over-1-billion/

by thafman • 16 years ago

19 24 16 years ago

blogs.barrons.com

samd2• 16 years ago

The "street" is clueless. Not only does Google have plenty of cash to burn, but this could snowball into something that pays off for them. Google has a vested interest in a faster internet, just like shipping companies have a vested interest in better highways.

brianobush2• 16 years ago

Spot on. The street looks quarter to quarter. Looking ahead for the next big thing is next to impossible for that mindset. This is where google got it right in setting up two classes of shares to keep wall street from messing up the big plans.

csmeder• 16 years ago

This is the problem with going public. You are dictated by the street and its short term goals. The street has no vision. And this sucks because they hold the power? (Steve Jobs gets a little leeway because hes proven over and over again.) Investors can vote out board members if they think this is stupid right? And board members out of fear can fire the visionaries. By going public google's balls are in the grip of the street and at its whim? I never plan on going public for this reason, but enlighten me if I'm wrong. To me it seems like "don't be evil"/visionary and being a public company can't go hand in hand.

MikeCapone• 16 years ago

They will benefit from a faster internet, they will reap rewards from infrastructure investments that other ISPs will make to keep up, and they will get some nice brand equity out of it.

jonknee4• 16 years ago

> The cost of the rollout - which will involve physically laying cable to individual homes - he thinks will be somewhere between $3,000 and $8,000 per household.

Curious numbers considering Verizon spends ~$700 per home to connect their fiber network. I don't see Google spending more than 10x than what their closest competitors spend. Especially when they can cherry pick an easy market for the test.

Still, the capital expenditure is offset by revenues coming in. At $50/mo that's $600 in revenue coming in per year for each household. Finance the construction and pay it off with the monthly revenue.

The toughest part by far will be dealing with the existing players. No telecom company is friendly to a new entrant.

djcapelis• 16 years ago

There's a difference between fiber to the driveway and fiber to the home itself. I'm guessing the $700 price is fiber to the driveway. Existing players can (and almost always do) run the last few hundred feet over copper even if they call it fiber to the home.

It seems absurd there's such a cost differential, but there you go. If you look at other types of hookups, you'll find they can be equally expensive. Sewer hookups are four digits usually too.

Now we don't know if Google will actually take this approach, but the numbers they quoted aren't completely absurd for some cases. Though I imagine Google has a few neat tricks planned which may upset some long-held assumptions.

jonknee4• 16 years ago

FiOS is fiber all the way, they rip out the copper that was there previously even. The costs have gotten cheaper as they scaled up, but even their initial costs were on the lowest end of the OP's estimate.

d2viant• 16 years ago

I'm guessing you mean 600 in revenue, per year.

jonknee4• 16 years ago

Yep :)

aminuit• 16 years ago

Google is going to have to build (or outsource) a lot of what Verizon already has. He may be considering those costs when he does the per household numbers. Consider that Verizon has an army of trained field technicians, fiber trucks, call centers, easement rights, and so forth.

cmelbye• 16 years ago

I'm wondering how they'll deal with the existing telecoms also. They enjoy a nice monopoly generally and I don't think they're going to give it up too easily.

baguasquirrel• 16 years ago

Maybe the extra cost is in buying off the incumbent telecoms. Or getting around them. Just speculating.

houseabsolute• 16 years ago

I don't think it costs that much in terms of paying the municipality to lay a new set of cables. I'd guess most cities would be happy to have you. But it is expensive. Digging a trench to the house, installing the wire, filling the trench back up, you gotta pay someone for that. And you have to pay the crews that lay the wire. Then you have to pay people to block the street, probably there is some fee to the police involved. Of course this does not even count peering costs and the cost of people to manage and maintain the network. I'd not be surprised if the labor costs were in the hundreds of dollars per house, and much larger for the street portion of the laying.

jsz0• 16 years ago

I was involved in the planning for a FTTH project that never materialized largely due to the cost of per-home installation. The numbers I've heard in the industry about Verizon's per household installation (on the east coast) is $4k per home.

rogermugs• 16 years ago

google's got the cash.

i put forth my neighborhood as a potential test candidate... pretty sure we're not gonna win tho.

ShabbyDoo• 16 years ago

Perhaps Google is going to force the hand of America's existing telcoms to provide more reasonable broadband services. Right now, they're sitting fat, dumb, and happy as oligopolists with no significant incentive to provide faster service -- as long as their competitors don't move first.

These "tests" are strategically similar to the Chrome browser. It's not that Google cares that it provides a fast, standards-compliant browser to the world. Instead, Google simply cares that nobody else can limit progress by sandbagging, as Microsoft did with IE6 for years. So, even if Chrome's market share is relatively low, its existence forces Microsoft to compete. And, when Microsoft does, Google wins because its net-based services are a good user experience.

Phone companies don't want the expense of upgrading their infrastructure to support fast Internet. And, cable companies are surely terrified of gigabit-to-the home. Why would MTV bother with the cable companies when it could just stream its shows on demand via Akamai (or whomever) and sell highly-targeted advertising?

This strategy also reminds me of Google's $4+B bid on the 700mhz spectrum. They didn't actually want to own it, but they wanted to be sure the US government sold it with the open access rules attached which would ultimately benefit themselves.

Five years from now, I think The Street will look back on this move as brilliant.

thwarted• 16 years ago

Agreed. The only way I want the terms "fat, dumb, and happy" to be used in reference to telcos is when talking about their pipes.

invisible• 16 years ago

Google as an ISP: "We give anonymity to your data but track every website you visit. We do not sell your information but we do use it for our advertising and search results." Just a search for more data with proven annual income?

coryl• 16 years ago

I'm thinking it would be in the best interest of telecom giants to get in on this experiment. This is inevitably the direction their headed, and they would learn a lot from it.

If anything, telecoms should be bidding on the contract to lay out Googles fiber, and subsequently working with Google to own the next big pipeline infrastructures.

Google’s Little Fiber Experiment Could Cost Over $1 Billion

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