Wednesday, February 19, 2014

The rainbow rabbit leaps over incumbents: Google Fiber in diligence for expansion in 9 metro areas of U.S.

Google Fiber's announcement today that it is in diligence with local governments in nine metro areas of the United States for possible expansion of its proprietary fiber to the premise (FTTP) telecommunications infrastructure illustrates how a company that has been in the Internet business from the beginning can nimbly hop over legacy incumbent telephone and cable companies. The incumbents are weighed down by large investments in metal wire-based infrastructure and outmoded pricing structures that rely on creating artificial bandwidth scarcity and unit-based consumption. They must also satisfy shareholders who favor big dividends over capital investment in FTTP networks -- which explains why Verizon halted its FiOS FTTP product expansion in 2012. Finally, incumbents have sowed sour relationships with local governments that have asked for better service for their residents for years, making them likely to heartily welcome the Googlers.

What's also evident from today's announcement is Google Fiber's colorful hare won't likely be running to areas of the U.S. where it's needed most -- locales where homes and businesses lack wireline premises Internet service due to redlining by the incumbent providers.

Those areas will likely have to rely on municipal and cooperative fiber builds, although some investor-owned players could potentially offer them FTTP as in this rather counterintuitive circumstance in Mississippi. They can, however, benefit from Google Fiber's experience, adopting principles and techniques that lower costs and improve the economics of FTTP. These include prioritizing construction based on interest from potential subscribers and differential pricing models that include an option for basic, flat rate service at low cost for a limited period of time.

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