Even before Provo announced that Google Fiber would be taking over iProvo, there’s been a lot of speculation that Google Fiber could potentially take over UTOPIA. UTOPIA made their pitch with 1100 other cities, and I produced my own video explaining why a partnership would be a good deal for both parties. Since then, Google has drastically altered the original terms of the arrangement, throwing both open access and municipal involvement under the bus (unless you consider providing tons on concessions “involvement”). Despite Google and UTOPIA being in talks shortly after the RFI closed, I don’t think we’re likely to see any kind of takeover or partnership between the two unless there’s concessions from one or both sides.
I think the largest sticking point is going to be open access. UTOPIA has repeatedly stated that their goal is to offer a world-class infrastructure that any private company can use to provide services. It’s not just enough to provide a third pipe; the network must allow you to pick between companies that differentiate themselves on what they can do with it. This kind of competitive environment has been proven to drive innovation and lower consumer prices across the board. While I have no doubt that Google’s network will do both, it runs the risk of being so superior to existing options as to become a new monopoly.
Google’s focus has been on residential customers. While this is a critical segment for service, there’s almost no mention of business needs. Yes, small businesses and startups can probably do just fine using the same tier as residences, but many need more than that. UTOPIA’s biggest customer uses 20Gbps of bandwidth. If all of their users on the network were on gigabit, they’d need even more to keep up with all of them. The lack of focus on the business end of the pipe degrades the value of the gigabit connections for residential customers. UTOPIA has a complete end-to-end vision; Google does not.
Another problem is the financial terms of any arrangement between the two. Google got a very sweet deal on iProvo, effectively a perpetual free lease with a $1 security deposit. The city is still going to have to pay off the debt on the asset themselves. In exchange, they’re hoping that improvements done to the network will improve it enough that it will be an economic net positive. I think the city could have negotiated a better deal and Google would still be doing well on it financially. I have no doubt that the UTOPIA cities, who are much more eager to pay off the bond, would hold fast for better terms.
If the numbers from iProvo translate to UTOPIA, Google would have to spend somewhere in the range of $40-50M to connect houses currently passed by the fiber and upgrade them to gigabit. This doesn’t include building fiber rings to areas not yet covered. That could easily add another $150-200M to the tab. Should they manage decent take rates (35% of customers paying for service split evenly between Internet-only and double play, and another 35% taking the freebie service), they’d earn $78.1M per year on expenses (including the bond) of about $36M per year. At the high end of finishing the network, it would take them almost six years to break even.
Given that Google seems to be aiming for seven-year commitments, that might be a price they’re unwilling to pay. The cities would have to make some kind of concession to sweeten the pot, and it would likely include tossing existing providers off the network and covering at least some portion of the bond debt. These actions would cause a decent amount of backlash both from residents as a whole and the power user subscribers who have been evangelizing the network for years. If Google’s goal truly is to increase broadband penetration, I’d like to think they would accept any offer that doesn’t make them lose a small fortune.
