Will Google's 1-Gbps Network Get Many Customers?

By Gary Kim January 20, 2012

Though it might seem a crazy question, one has to ask whether Google's 1-Gbps network is going to get a significant number of customers. Much could depend on whether Google is willing to lose money, and Google executives say that will not be the case; Google fully intends to run the network as a money-making venture, not a money-losing demonstration project.

In most discussions of broadband deployment, it is assumed that supply is the key issue. People want much-faster broadband, and, it is presumed, are willing to pay for it. But that doesn’t seem to be true in practice.

Though many U.S. providers offer service of 50 Mbps or even 100 Mbps, and though there is some business demand for those services, it does not appear that consumers are convinced that the value-price relationship makes sense.

To be sure, lower prices virtually always increase demand for products people actually want, so some advocates would say the issue is that service providers will not price 50 Mbps or 100 Mbps at prices low enough to shift demand from the 12 Mbps to 20 Mbps services generally available to most consumers.

Most service providers would say they cannot afford to do so, so the issue remains the level of demand at current prices. Consumers in the United States do not seem to be alone in voting with their wallets for broadband at much-lower speeds than 50 Mbps.

In Germany, where one million consumers can buy fiber to the home service, the number of FTTH subscribers in Germany is 166,000, equal to only 0.4 percent of the country's households.

German consumers are very slow in adapting to FTTH high-speed networks, one must conclude.  In cities and regions where FTTH or “fiber to the basement” exists, only about 17 percent of potential customers actually buy such services.

Some think the lack of interest from consumers is complicated by consumers who have contracts that prevent rapid switching behavior. Others might argue the marketing of such services is lacking.

But a simpler explanation might be that slower services are “good enough,” and have a favored value-price relationship.  Low demand for fiber services, in that view, reflects the current state of end user demand, where there seems to be no compelling reason to upgrade.

So even though it is nearly universally agreed that fiber to the home is the ultimate goal for fixed network access, executives and policymakers are right in continuing to emphasize that the financial return is inadequate to spur rapid and robust fiber replacement of existing copper-based but fiber-augmented access approaches.

In what has to be a troublesome sign, Verizon Communications, long the biggest U.S. service provider arguing that fiber to the home makes immediate financial sense, now has halted further FTTH builds and seemingly is more interested in mobile broadband.

That isn’t a good sign. It suggests that Verizon’s hoped-for total returns (new service revenue and lower operating costs) now are falling below expectations. That does not mean all smaller providers will encounter the same business case drivers. It might well be the case that, in some cases, fiber to the home networks do make immediate financial sense.

But in most instances, the business case is a defensive matter, not a growth strategy. In other words, it sometimes is the case that a particular service provider must invest in fiber to preserve hopes of keeping its business. So incremental revenue gains might not be the primary business driver.

In fact, the fiber builds might more often take the form of “trading market share” with local cable companies just to maintain current revenue prospects.

One might therefore ask questions about whether Google's 1-Gbps fiber access network being built in Kansas City, Kan. and Kansas City, Mo. will do any better. If there is low demand for 50 Mbps or 100 Mbps in markets where the government has not subsidized the service, what are the prospects for a 1-Gbps service?

With a small handful of exceptions, fiber to home uptake seems relatively restrained on a global level, suggesting that, for most consumers, what they can buy on the older networks provides a value-price relationship that is good enough.

Google and officials in Kansas City, Kan., said Google remains on schedule to go live for the first customers for Google's 1-Gbps network in the first half of 2012.

In Germany, for example, FTTH take rates are just 0.4 percent, though one million homes are able to buy the service. Low take rates

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Gary Kim is a contributing editor for TechZone360. To read more of Gary’s articles, please visit his columnist page.

Edited by Rich Steeves

Contributing Editor

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