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Google to Push Its Fiber Rollout on Comcast's Turf
By
Rolfe Winkler and
Shalini Ramachandran
connect
Updated Feb. 19, 2014 7:45 p.m. ET
Google Inc.
GOOG -0.03% is considering expanding itsfiber network to nine more metropolitan areas, intensifying the competitive threat the Web giant could pose to cable operators that now dominate the broadband market.
Google offers one gigabit speeds. Reuters
Google said Wednesday it has begun early discussions with 34 cities in the nine areas, including San Antonio, Salt Lake City, Atlanta, Portland, Ore., Nashville, and Phoenix. Google Fiber now operates in Kansas City and Provo, Utah and had previously announced plans to extend its service to Austin, Texas. Google hasn't disclosed how many people have signed up for its service.
In its first two markets, Google Fiber offers download speeds of up to one gigabit per second for a monthly charge of $70, vastly faster than any broadband service offered by major cable and phone companies. It also offers a pay-television service for additional fees.
Comcast Corp.'s
CMCSA -1.37% top broadband offering is only half as fast as Google's and costs $399.95 a month. Those speeds are only available in a portion of Comcast's service area.
For the Web giant, faster Internet speeds mean consumers can gorge themselves on more of its services, including Google Search and YouTube, providing it the opportunity to show them more advertising. "People do more of what they love on the web when speeds are fast," Kevin Lo, general manager of Google Fiber said on a conference call Wednesday.
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The extent of Google's ambitions in offering fiber remains unclear: some in the media industry have long regarded the venture as an experiment, aimed at motivating broadband providers to boost their speeds. Building a fiber network is enormously costly, even for as deep pocketed a company as Google.
Google gave little clue about its longer term plans on Wednesday. It doesn't expect to get to all of the 34 cities, the company said in its blog post, although a spokeswoman said later that Google hoped to get to most of the 34 cities.
Mr. Lo said the extensive planning that the cities will be exploring with Google would ultimately benefit any broadband provider that wants to boost speeds. Mr. Lo didn't offer specifics regarding how much the expansion of Google Fiber will cost.
Cable investors reacted negatively to the news, sending cable stocks falling. Comcast Corp fell 3.7% while
Time Warner Cable Inc.
TWC -0.79% dropped 2.8%. The two companies announced a $45 billion merger agreement last week, a combination that if approved by regulators would give Comcast 32 million broadband subscribers, before any divestitures.
Among the cities Google has pinpointed for expansion include several markets where Comcast offers service, including Atlanta, San Jose, Portland and Nashville, as well as regions of North Carolina where Time Warner Cable serves customers.
"Competition is good in these local markets," said San Antonio Mayor Julián Castro on Wednesday's conference call, since it leads to lower prices for consumers and improved service.
Cable operators provide broadband to 52 million American households out of a market of about 90 million homes with broadband as of the third quarter of 2013, according to SNL Kagan data. For cable operators, growth in broadband has offset a stagnant TV market in the past couple of years.
Still, cable companies haven't ramped up speeds to gigabit levels, questioning whether there is consumer demand. Technology companies argue that faster speeds make it possible to offer better services to consumers, like streaming video.
In five years, Google Fiber "could turn out to be a significant, profitable business for Google and headwind for [traditional broadband providers]," Bernstein Research analyst Carlos Kirjner wrote in a note on Wednesday.
Cable operators have already come under competitive pressure in recent years, from private companies working with local municipalities to build fiber networks, as well as phone companies like
Verizon Communications Inc.,
VZ -1.77% which invested billions of dollars building its fiber optic FiOS network that has signed up millions of customers for both broadband and TV. While Verizon doesn't offer gigabit speeds, full-fiber networks like FiOS are easier to upgrade to faster speeds than the pipelines built to homes by cable companies which use a mix of coaxial cable and fiber.
Cable operators have responded. Comcast offers its fastest broadband speeds in FiOS markets. Google hasn't picked any FiOS markets among the 34 cities it announced Wednesday.
Meanwhile, Time Warner Cable first deployed its top speed of 100 megabits per second in Kansas City, where it competes with Google Fiber.
Google's plans could be bolstered by indications Wednesday that the Federal Communications Commission is likely to encourage towns and cities to build their own broadband networks, in hopes of fostering competition in broadband.
Google's announcements could also factor into regulators' review of the Comcast-Time Warner Cable deal. A potential roadblock to that deal might come if regulators determine there isn't enough competition in providing broadband Internet service to consumers.
