This week, Google ( GOOG) announced two major developments in the growth of its Google Fiber gigabit Internet and cable TV service: the addition of HBO and Cinemax to the programming lineup and the network’s expansion to Provo, Utah. These announcements follow last week’s news that Google Fiber will deliver its ultra high-speed Internet to Austin, Texas, bringing the grand total of participating cities to three and affirming the search giant’s efforts to change the way people access the Internet.
While much of the excitement surrounding Google Fiber has centered on the service’s potential to act as a catalyst for business growth, questions about the project’s impact and viability remain. Will Google Fiber pose a challenge to the private companies dominating the telecommunications services industry? What is the likelihood of a national roll out? What are the financial implications of this endeavor?
As far as the competition is concerned, it appears that Google Fiber is, in fact, a threat. Following Google’s Austin announcement, AT&T ( T), one of the area’s main cable and Internet providers, shared its intent to build a 1 gigabit fiber network in the city. The company’s main stipulation is that it receives the same terms and conditions as Google, a request both AT&T and Time Warner Cable ( TWC) similarly sought in Kansas City after Google Fiber’s initial launch. Parity agreements aside, AT&T’s biggest challenge lies in upgrading its 24Mbps U-Verse broadband service so that it may become a worthwhile contender for Google Fiber’s 1000Mbps.After Kansas City, where Google Fiber prompted Time Warner Cable to offer faster speeds to business customers, the cable giant has been quite restrained in the wake of subsequent announcements. In response to Google Fiber’s impending entry into the Austin market, the company simply released a statement highlighting its current state-of-the-art, next-generation, and multi-gigabit offerings. Additionally, Jeff Simmermon, Director of Digital Communications, wrote a blog about Google Fiber in Austin, dismissing the notion that consumers need or want 1 gigabit Internet while acknowledging that competition will spur innovation. Time Warner Cable’s decision to go on the defense may partially be attributed to an increasingly popular belief that Google Fiber will not go nationwide. An oft-mentioned Bernstein Research report illustrates this improbability. In the report, analysts Carlos Kirjner and Ram Parameswaran estimate costs of up to $11 billion for a medium-to-large rollout of the service to 20 million homes. Kirjner and Parameswaran cite the hefty price tag along with competitive and regulatory obstacles as significant hurdles in a national expansion and believe the expansion’s business impact would be marginal. But does Google need Google Fiber to go national for the project to be a success? Considering that Google generates most of its revenue through ads, Google Fiber’s true value lies in its ability, or inability, to augment the search engine’s ad business. Google Fiber provides users with unprecedented ultra high-speed Internet access, which will cause people to see more ads in a shorter period of time. This will allow Google to sell extra ads, conceivably at higher prices given the valuable platform provided by Google Fiber, thus increasing the company’s revenue. Google also stands to benefit from exposing new audiences to its diverse offerings, from the Nexus tablets provided as TV remotes to the included terabyte of Google Drive cloud storage. Whether Google plans to take the project nationally or not, the increased ad views and usage of different Google features will allow the company to obtain additional revenue from each user.
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