There’s a lot of talk about Google Fiber bringing competition to the marketplace, but I think it’s a lot of smoke and mirrors. In reality, Google is very good at leveraging its brand to cover up many plays it’s pulling straight out of the incumbent playbook. In the end, they’re acting a lot more like Comcast than I think many are comfortable with confronting, much less admitting. I’ll make a bold prediction: Google will be the new Comcast within 5 years. I’ll make the case as to why.
The biggest problem I see with Google Fiber is their practice of redlining and cherry-picking. Their pattern so far has been to break up neighborhoods into very small “fiberhoods” and only build if there is sufficient demand. Given that they ask for either a 2-year contract at $70/mo or $300 to install the service, it’s easy to see how low-income neighborhoods are unlikely to reap the benefits of a new vertical monopoly in town. This is the kind of practice that Comcast and CenturyLink has been dying to get into: upgrading only the most lucrative areas and letting the low-margin subsidized lines languish.
Let’s not also forget that you have a very limited time to sign up or be left behind. Google has made it very clear in their FAQs that it has no plans to reopen to new subscribers once the signup period has closed. In a rental-heavy market like Provo, this could exclude a large proportion of the user base from ever getting service. There’s also no mention on if someone can reactivate a terminated line to get service again.
So why is Google doing this? Based on the company’s history, I think it’s all about costs. Google is famous for designing hardware to meet very specific needs, a process that leads them to be extremely efficient. It’s not much of a stretch to think this same efficiency is being applied to building Google Fiber. (Warning: speculation ahead.) My theory is that they’re building the network exactly to capacity in an effort to reduce costs and maximize ROI. If you don’t have to plan for potential future additions or build the network where demand won’t meet certain profit goals, you can slash your cost per subscriber to under $1K. Assuming they make about $35 per subscriber per month in profit (which is consistent with numbers I’ve heard from UTOPIA service providers), that works out to a payback of under 2.5 years. With a 5-7 year contract, it’s not hard to see how Google is going to make money hand over fist.
This makes it all the more curious, then, as to why they need all sorts of concessions from municipal governments to make it happen. While their official checklist for the latest round of cities claims that no subsidies are expected, it’s hard to see how really going to be the case. Kansas City greased the wheels with millions in tax dollars whereas Provo literally gave away the network to get Google’s attention. This is much like CenturyLink’s hypocrisy in decrying municipal systems as unfair competition while available themselves again and again and again of available tax dollars. Google may say that they don’t want subsidies, but the unspoken understanding is that without significant municipal concessions, they’re probably going to pass you over.
With all of these behaviors that remind us of the many ways in which Google is behaving like an incumbent carrier, it doesn’t take much to connect the dots. CenturyLink is probably going to let residential wireline rot on the vine as it pursues high-margin business services. Comcast will quickly hit the end of its upgrade capacity and focus instead on entrenching its vertical monopoly between content production and distribution, replacing CenturyLink as the “cheap” provider. Google is then free to fill the void left by Comcast as the “fast” provider, and we’re right back in the non-competitive state we had before, just with different names on the door.
To be quite frank, I don’t think Google has the capacity to be a good ISP. Google has a history of very technocratic decisions, depending heavily on the technical specs, prowess of their products, and brand name to compensate for their lack of customer service and direct marketing. This is uncharted territory for them, especially since they haven’t proven to be very adroit at dealing with entrenched companies whose lobbyists have very deep government connections. While I’m willing to be proven wrong, I don’t think they’re really prepared to survive in the regulation- and politics-heavy world of telecom, especially when the margins are relatively low. Once the reality of operating a utility settles in, you have to wonder if Google is going to treat their fiber products like they did their WiFi network in Mountain View.
When cities are considering Google’s proposal, they need to look at it with clear vision. There’s a limited amount of skin they have to put in the game, but they’re also not getting the same level of benefits that they could be. Overall, Google is offering to rearrange the deck chairs, not right the telecom ship. I hope that more cities will be wise to it.
I’ve always felt that the strategy behind Google Fiber was to be a catalyst for change, not a long-term objective to be a leading ISP. If your strategy is to deliver more and richer services that are bandwidth dependent, and the incumbents don’t seem interested in building that capacity, then disrupt the status quo through action.
I do agree that eventually, Google will get out of the fiber business. Or sooner if the tide really turns towards P3 opportunities like Utopia is forming.
This is why I say that cities MUST keep their options open and not race for the shiny object – http://gigaom.com/2014/03/17/gigabit-lesson-no-1-partner-in-haste-repent-at-leisure/?go_commented=1#comment-1451868
Jesse, The FAQ you link to actually shows them reopening signups in established areas. That said I understand where you are getting at. It seems a little early to tell if they will never open up again. Other questions in the FAQ lean toward them still expanding the fiberhoods. Just the fact that they are looking to expand to 39 other cities I think shows that they have a continued interest. It would be much cheaper for them to build out additional neighborhoods rather than setup shop in additional cities.
What the FAQ says depends on how you read it. Google has stated that they do not plan to re-open qualifying areas again. They also do not specify if/when they will open areas that did not initially qualify. It makes it seem like whether or not an area can sign up later depends entirely upon their whims. That’s VERY far from the Macquarie proposal for a full, universal build in very short order.
Google is evaluating up to 34 cities for expansion, but they have also made it clear that many of them will likely not qualify under their terms. Cities are used to calling the shots on these projects, not having terms of a franchise agreement dictated to them. Google expects cities to forgo standard licensing processes and franchise agreements. That’s giving up a lot of control and revenue. Google uses its brand to kind of gloss over that.
You raise an interesting point: why is Google expanding to more cities now rather than finishing some of its builds? My observation is that people are starting to look at this deal a little more clearly, and the makeup isn’t quite covering all of the warts anymore. Google has to move quickly to lock up deals in other cities before it faces the very real possibility that cities will consider the full breadth of the terms and start saying “no thanks”. This will only become more prevalent when Macquarie starts building out in the US. Google is using the old incumbent tactic of locking you into a long-term contract before you know about your other choices. Do no evil indeed.
Jesse – I still fail to see why you hate Google Fiber so much. They are on OUR side… really they are. If you are going to pick a fight, go back to talking about the crappy incumbents.
Political nuances aside, the reason google are doing the network is because they understand the dream of what fast broadband is all about, ultra fast speeds for reasonable prices with no caps, and let people come up with awesome uses for those speeds.
Let’s compare that to the guys run UTOPIA, currently operated by former T1 scammers from the 90’s who believe that if you want high speeds you should be paying the same rate per mb/s as they were selling a decade and a half ago. The only reason they offer residential for reasonable rates, is because the cities are forcing them to.
Our business UTOPIA line in Orem is over $700/month for 30/30 with caps!! That’s a freakin’ joke, and when I sat down with them in person, they basically told me pay it or don’t let the door hit you on the way out. Since they are our only decent option for our office, we are forced to pay, and under a long term contract too.
However, the 2 year “contract” with Google fiber is easy to break, just give all the hardware and Nexus tablet back. Done and done. Not that anybody in their right mind would cancel. And yes I realize there isn’t currently a business plan for GF, but there will be soon. And in fact I know of several businesses who’ve talked Google into connecting them up anyway.
Please stop picking on the guys who are truly making broadband awesome around here. Also, if it wasn’t for GF, I seriously doubt Macquarie would be talking to UTOPIA.
The problem with Broadweave and Veracity operating the network wasn’t that they weren’t delivering gigabit; it was that they had turned an open network into a closed one. Google may have a better speed and price, but that fundamental problem (which was at the core of your opposition to Broadweave) still exists. Can you elaborate on why you feel a closed network is no longer a serious problem?
Let’s be real: Google’s purpose in everything they do is growing the advertising pie. Self-driving cars? There’s an hour or two every day you can view Google ads. Google Glass? Contextual advertising with augmented reality. Android? One big, old ad platform. While Google may have the side effect of offering a third wireline competitor in some markets (and I have little doubt CenturyLink will withdraw and bring it back down to two), the real value for them is to make money while expanding their advertising reach. If their core process was really improving the state of broadband, why did they abandon both open networks and public-private partnerships?
You’re up in the night on who runs UTOPIA. There’s not many legacy telecom guys in that building. In fact, it’s full of “true believers” who work there because they believe in the mission of open-access fiber networks. Many of them have declined higher-paying jobs for years because they believe in it that much. You’re going to have a hard time convincing me that these guys are in it for the money.
As far as that business plan, let’s compare it to a Google Fiber business plan with SLAs and all that jazz. Oh wait; you can’t. Because Google Fiber has no business plans, even a year after they made their announcement in Provo. If you’re going to do comparisons, at least have the consistency to compare apples-to-apples with commercial plans from CenturyLink and Comcast. Comparing a Google Fiber residential plan to a UTOPIA commercial plan is both inaccurate and dishonest.
If you want to disagree with me, fine, then disagree with me. But at least do me the decency of addressing specific points on which I am wrong (with citations) rather than comparing unequal terms and making up wild accusations.
In a perfect world, yes, iProvo would be an open network. But what we have is leaps and bounds better than 99.999% of the world, and I’m happy to celebrate that.
Google fiber isn’t about advertising. I’ve spoken with several of the GF execs that came to town, and they’ve all confirmed they plan to make money from offering the service. If people happen to consume more general internet advertising, like YouTube ads, etc. Then that’s a bonus, but anybody with a high speed, cap-free internet will get that. Including UTOPIA customers.
When we signed up our company in Orem about 18 months ago, I had a meeting with several executives including the head of sales, and they were ALL former telecom jerks. Maybe that’s improved since then, but their business pricing most certainly has not.
You are correct I can’t officially compare business to residential prices, yet. But I can confirm that one of the businesses that managed to get a GF connection, their prices was WAY WAY WAY less than what we are paying for UTOPIA. And of course 33 times faster and cap-less. I am assuming their business plan, which multiple execs confirmed was in the works, will be similarly priced. I also don’t understand why UTOPIA screws businesses so much, in talking with Pete Ashdown (whom I’ve known since High School), residential internet users use FAR more bandwidth than businesses, all their Netflixing etc. I think it’s a Comcast like move to force businesses to pay these exorbitant rates, just because they can.
Yes, I do disagree with your tone toward GF, you act like it’s doomsday for the iProvo network, but I’ve had nothing but fantastic service, features and customer service. Much better than I ever previously received on iProvo or shudder Comcast before that. GF are amongst the good guys in this story. Are they running it exactly how you’d like them to, no. But they are running it SO much better than Veracity or Broadweave or any of the multiple ISPs before that. And that’s a good thing for everyone.
Look, I desperately want UTOPIA to survive. In fact, 2 years ago our company volunteered our services to UTOPIA’s sales team, we helped them film testimonial videos, and we created an iPad app for their team at a loss for us. I was on capital hill back in 2003 or whenever that was, when they were fighting to even exist, I’ve probably gone to nearly as many town hall meetings as you have.
But yeah, I was pretty pissed off when they decided to screw our company by dropping our silver plan and giving us a connection that was less than half the speed for 3 times the price. That was when I decided the people running it were no longer “true believers”. Maybe that’s changed… I can only hope, and I have big hopes for the Macquarie deal.
I still think you’re missing the point. There is little dispute that the speed is world-class. (I disagree with Google’s decision to use PON over Active Ethernet, but that debate is a MUCH larger scope.) The entire problem is with the lack of a competitive landscape. I laid out precisely why Google does not fix this problem and, in the long-term, will basically preserve the duopoly. You haven’t yet presented any evidence or argument as to how this isn’t or won’t be the case. Given how duopoly situations have worked out in the past and Google’s own track record when they get bored *cough*Mountain View*cough*, can you really blame me for being pessimistic?
I’m going to go out on a limb and say you met not with UTOPIA people, but with people from a service provider. The great thing about that is you have about a dozen other commercial providers you can talk to. Competition is awesome that way. If you were dealing with a closed network, it would most definitely be a “take it or leave it” situation.
You’re still going apples-to-oranges in your comparison. That $700 was probably going to buy dedicated unshared bandwidth with an SLA and likely some QoS. Those things a very expensive, and it’s why residential connections typically do not include any of them. Businesses who think they don’t need those things and just want a cheaper residential line are usually the kinds of customers that cause a ton of headaches. They didn’t pay for those premium features, but they almost always have the expectation that they should get the anyway because their business depends on the connection.
Google will say they aren’t about advertising, but I don’t believe it, at least not long-term. Yes, they are not collecting your Internet activity for advertising purposes right now. (Note that they ARE collecting your TV viewing habits and associating it with your Google Account, so there’s that.) Like any policy, they reserve the right to change it later. As an advertising company, that’s a lot of data to be willingly giving up. Recall that AT&T put the price of giving up that data at $30/mo and they aren’t even in the ad business. That’s an awful lot of money to be leaving on the table.
And really, that’s something else I think you’re missing: this is not about what Google is doing right now, but about what they will be doing five years from now. If CenturyLink leaves the wireline business (which I think they want to) and Comcast decides that the market is too competitive to justify additional investments, what then? Will Google stay a benevolent overlord in that position of immense power? I’m not going to count on it. Neither should you.
It was most definitely UTOPIA, right in their offices off 21st south. In fact our ISP at the time was Fibernet and I brought their CEO with me because we were both frustrated with the new pricing.
Who is your provider on UTOPIA? May want to shop around to one of the other ISPs. It also sounds like your office may be paying for dedicated bandwidth to the ISP vs shared burstable bandwidth. Kind of like the difference between getting a T1 over say Business DSL or DOSCIS service.
I can tell you we pay less than that for a 100/100 point to point circuit (no Internet) between two offices. That is about $250 less than we pay Comcast for a 80/80 EPL circuit. Comcast and Centurylink are always willing to build out fiber to businesses and sell Metro Optical Ethernet (MOE) services. Just know its going to be more than UTOPIA. One gig MOE on Comcast or Centurylink is going to be at least $2k to start and that’s just for a simple point to point link no Internet. Both C companies have provided solid service to us and outside of their cost I really have no qualms with their Business/Enterprise side of house. Utopia’s price for similar service is really great. Now compared to Centurylink VDSL (if you can get it) or Comcast Workplace (DOCSIS 3.0) your right $700/month is a little steep but 30/30 dedicated bandwidth isn’t the correct product to compare those against.
I notice on Xmission’s website they have a 1Gig deal for $1,500/month. That is a great deal. They unfortunately don’t show detailed prices for the circuit size you have.
Disclaimer: I haven’t ever priced out Business Internet circuits on Utopia just point to point links.
Ok so you can probably ignore my first paragraph. My post was being crafted while you posted your follow up.
What would it take to “right the telecom ship” Jesse? How can we preserve and encourage competition?
I think open access networks like UTOPIA are the only way to encourage competitive choice in the marketplace. Given the issues with establishing a natural monopoly, I don’t have any issues with such systems being owned and operated by municipal governments, state agencies, or interlocal agencies. At least then they are responsible to us directly rather than via regulators that are often manipulated.
Yes, they may say there’s a deadline, but they’re not clear on any of their marketing what that means.
I was told by Verasity I had until July 1. I waited until June. I was too late. Now they tell me I have to get another service until the end of the year.
GRR! That’s pointless since I already have fiber to my home.
I hate this. I wish they had said “sign up or wait until January 1” or something like that. Now I’m forced to go back to Comcast. I want to die.