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Will Google Fiber Expand Beyond Kansas City?
Dave Burstein: $70 Price Point Should Be Very Profitable
by Karl Bode 06:37PM Thursday Aug 16 2012 Tipped by travelguy See Profile
Long-time industry analyst Dave Burstein argues that everything about Google's fiber business model indicates that the company will be looking to expand its 1 Gbps services outside of Kansas City -- potentially to the tune of "tens of millions, maybe hundreds of millions" of homes. Burstein's justification for this is the $70 price tag for the symmetrical 1 Gbps service, which he argues should be "quickly profitable" if just 20-30% of potential subscribers sign on (not including the money that will be made via service ads or spying on everything these users do). Says Burstein:
quote:
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It’s completely unannounced and until the Kansas City details came out I didn’t believe it myself. Sergei Brin and the team at Google want to move ahead on a plan to run fiber to 10’s of millions, maybe hundreds of millions of homes. That’s implied by the $70/month price, which is high enough to be quickly profitable if 20-30% of homes sign on. Google’s research says they’ll get that high a rate, but no one is sure until they actually offer the service to 170,000 homes in Kansas City.
Existing higher speed services (50 Mbps plus) often don't see particularly good take rate, but Burstein argues that's primarily due to the ridiculous prices carriers tend to affix on these tiers (usually $100-$300) to keep users from actually using them. At $70, Burstein argues that the take rate changes dramatically:
quote:
I have empirical examples of surprisingly low high speed take rates from Sweden, France, Britain, Hong Kong, Japan, Korea, and California. A difference of $10 to $30 discourages 3/4ths of the customers. Google is looking for $70/month for a gig, compared to 10 meg cable at about $50 and 3 meg DSL at about $35....A $50 difference between 10 meg cable and 50-100 meg DOCSIS has been standard in the U.S. and the take rate on the higher speeds has been so low no company will reveal it.
The problem is that Google has long dabbled in this space, from their 1 Gbps deployment in Stanford to their Wi-Fi deployment in Mountain View. However, every indication has been that Google is primarily interested in lighting a fire under other carriers, showing the press and the public that fiber to the home deployment isn't quite the ridiculous, unprofitable monster it has long been portrayed as by companies that for the last decade have been more interested in investor returns than quality product.

However, despite the national attention, Google Fiber still feels like a vanity PR project intended to inspire, useful predominately for testing next-gen advertising services and collecting the kind of real-world data ISPs never divulge. There's a dramatic difference between wiring one medium-sized city and diving head first into wiring a nation, and so far Google's shown no real indication they have the stomach for the latter. The money is probably there, but the intestinal capital required to navigate telecom's often bizarre incumbent-dominated anti-competitive minefield may not be.


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