Deterrence: AT&T launches pyrrhic war of mutually assured diminished returns against Google

On the heels of Google's announcement it will build fiber to the premise (FTTP) Internet infrastructure serving the Austin, Texas area, AT&T announced it will build its own 1 gigabit FTTP infrastructure to match Google's.

The announcement amounts to a declaration of pyrrhic war by Ma Bell, designed to impose diminished returns on Google since the economics of competing fiber infrastructures could drive down take rates and ARPU for each player. AT&T is sending a message of deterrence to anyone that dares to invade its sovereign service territory with FTTP infrastructure faces mutually assured prolonged ROI and potential losses.

Meanwhile, as Ma Bell and the Googlers engage in a war of attrition in a select few metro battlefields, much of the United States can and should pursue a more peaceful and sane alternative in municipal and cooperatively constructed and owned open access FTTP infrastructure. 

Google testing white spaces cloud in South Africa

Memeburn has the story here involving the test involving the Tertiary Education and Research Network of South Africa (TENET).

The test is delivering connectivity comparable to basic Wi-Fi (2.5Mbps) to 10 schools, according to the story.

Google to Offer Internet Service in Olathe, Kansas - WSJ.com

Google to Offer Internet Service in Olathe, Kansas - WSJ.com: Google hopes its fiber initiative can put pressure on cable and phone companies to improve their networks as Americans use more bandwidth for online-video services such as Google's YouTube, among other sites.

Nonsense. Even assuming the truth of this purported rationale, Google can apply pressure all it wants, but for these publicly traded, investor owned Internet service providers -- Google included -- the real pressure is the pressure to produce quarterly earnings plus in the case of the incumbent telcos and cablecos, generous dividends.  And that imperative will always win out over CAPex to improve and build out network infrastructure.

N.M.’S Daunting Digital Divide | ABQ Journal

N.M.’S Daunting Digital Divide | ABQ Journal: If matching dollars from telephone companies that won stimulus grants are included, plus development loans from the U.S. Department of Agriculture’s Rural Utilities Service, broadband investments in the past five years surpass $400 million, according to the state Department of Information Technology.

But many of New Mexico’s rural zones still have no Internet coverage, and many that do are still using dial-up modems, or aging digital subscriber line (DSL) technology, said USDA Rural Development State Director Terry Brunner.

And don't expect Google to come in any time soon and build fiber to the premise infrastructure as it is doing in a single metro area, Kansas City.

“New Mexico still has a digital divide because in some areas it’s just so hard to go through mountains or rock formations, and then you get to the end of the route and find there just aren’t enough homes and businesses to pay for the construction,” said Valerie Dodd, CenturyLink Inc.’s vice president and general manager for New Mexico.

Not a valid explanation because it fails to take into account aerial fiber, using (and upgrading as necessary) the utility poles that deliver POTS (Plain Old Telephone Service) via copper cable.

Google Fiber expansion unlikely to solve America's incomplete infrastructure problem

As I recently blogged, market failure dogging the U.S. telecom infrastructure that continues to leave millions off the Internet grid calls for new business models.  Nearly six years ago, I speculated big Internet content amalgamators flush with cash (i.e. Google, Yahoo!) could might acquire legacy telcos and cablecos and upgrade their incomplete and inadequate infrastructure with their own.  That post wasn't fully on the mark because it didn't include the possibility that the content players' "big play for the pipes" as I termed it would be to overbuild the incumbents with their own infrastructure as Google recently did in a single American city: Kansas City. 

This Wired piece is sparking speculation that Google might in fact be planning an effort to expand its proprietary fiber to customer premises infrastructure supported not just by customer service charges but also by its own content, similar to the incumbent cableco business model.  "If it turns out Google Fiber helps Google sell more (and more valuable) ads and content," the Wired article notes, then building out more fiber would support Google's business model.  However, the article notes that the cost of doing so would strain even Google's vast economic resources, leaving the U.S. with what President Barack Obama described in his 2012 State of the Union Address as an "incomplete high-speed broadband network."

Another recent article posted at ZDNet points to the same conclusion.

Google's Kansas City fiber build doesn't change underlying infrastructure economics

This Kansas City Star article discusses the implications of Google's rollout of fiber to the premise (FTTP) infrastructure in Kansas City.

The newspaper interviewed Josh Olson, a technology industry analyst for Edward Jones & Co.  Olson sees the Google fiber deployment as a template to boost user demand for higher bandwidth and speeds.  If new applications that can run on this gigabit speed capable infrastructure emerge, it would increase pressure for incumbent cable and telephone companies in other markets to upgrade their networks. However, Olson goes on to dismiss that notion, noting incumbent telcos and cablecos can make money off their existing services.  Of course they can when these are the only wireline services available to most U.S. homes and small businesses unless their communities build their own fiber networks operated by local governments or consumer cooperatives.

And as industry analyst Dave Burstein points out, Google's fiber deployment in a single U.S. city cannot change the underlying economics for incumbent providers that must earn a rapid return on investment to keep their shareholders happy -- a business model that directly conflicts with the long term ROI associated with high cost infrastructure projects.  Plus telecommunications company shareholders are accustomed to receiving high dividends -- money that can't be directed toward CAPex.

“The problem is it costs a lot of money to climb all those poles and dig all those trenches to make it happen,” Burstein told the Star. “You don’t make money in three years, but you make money in 10 years."

Read more here: http://www.kansascity.com/2012/09/24/3832330/google-fibers-gigabit-gamble-has.html#storylink=cpy

Public utility district Internet as alternative to Google fiber

Most rural communities lag in the type of broadband Internet service available in urban areas. But northeast of Spokane, in Newport and the surrounding hills and valleys, around 5,000 homes and businesses have the chance to connect soon to a fiber-optic system with lightning-fast speed.


The network being built by the Pend Oreille Public Utility District will allow users to download and upload data all the way up to 1,000 megabits, or 1 gigabit, per second - far faster than the 10 to 20 megabits that is a popular consumer choice today.


It will rival the Google Fiber system rolling out in the Kansas City area and is fast enough to download a movie in seconds, conduct video conferencing at home, and watch multiple high-definition TV programs simultaneously online.


“We believe it’s kind of the footprint for the future of rural communities,” said Joe Onley, manager of the Community Network System for the Pend Oreille PUD

I expect PUDs like this one and consumer cooperatives will take the lead in building out fiber. The key reason is the time to return on investment is too long for private sector players, whether they be AT&T, Verizon, or Google.  And that applies in all areas -- not just rural locations.

Google Unveils Superfast Internet in Kansas City, Mo. - NYTimes.com

Google Unveils Superfast Internet in Kansas City, Mo. - NYTimes.com: Milo Medin, the company’s vice president of access services, said the technology and technical capacity were available to create this product on a global scale, but economics, such as the cost of constructing the fiber network in communities, presented a barrier.

Google's demonstration project does nothing to alter the cost and business model constraints that require communities to build their own fiber networks rather than investor owned providers.  While everything may be up to date in Kansas City, unfortunately for much of the United States it is not when it comes to premises Internet access.

It also starkly illustrates the dismal state of Internet capable premises telecommunications infrastructure in America -- accurately described as "incomplete" by President Barack Obama in his January State of the Union address -- where many must still rely on obsolete dialup modem technology that was state of the art when Obama's predecessor Bill Clinton was starting his first term two decades ago.  One city does not a network make.

Google 1 Gigabit fiber stimululates interest in fiber infrastucture

When Google announced early this year it would build 1 Gbs fiber in a test market somewhere in the United States, it sparked a lot of interest. One outcome and side benefit is Google's gigabit fiber project got locals thinking about fiber-based advanced telecom infrastructure and how to do it themselves knowing that Google isn't going to deploy it everywhere.

Baltimore is one place that realizes that. Baltimore Mayor Stephanie C. Rawlings-Blake wants to explore how to expand high-speed fiber-optic Internet service to city residents with or without Google's help, according to this Baltimore Sun article, and has established a panel to look into it.

"We can't sit here and wait for a gift from Google to fall on us from the sky," said Tom Loveland, the city's volunteer Google czar. "This is our future we're talking about here. Those of us involved in the conversation have seen what other cities have already accomplished. These folks managed to get themselves wired without Google. If they can do it, we can do it, too."

The view from the UK: America's "lame" "costly" "third-world" telecom infrastructure

The Economist offers this critical perspective on America's "lame" "costly" "third-world" telecommunications infrastructure that combines the worst of all worlds with poor quality service at high cost compared to other advanced nations. But the dreary state of affairs isn't much better across the pond in the magazine's UK home base either. Just a few months ago, Prince Charles warned much of the British countryside is in danger of becoming a "broadband desert," hamstrung by an aging, latency copper wire infrastructure that can't deliver sufficient throughput to enough of the populace.

As Exhibit A of the U.S. broadband gap, the magazine pointed to the outpouring of supplications to Google urging the company to roll out its experimental 1 Gigabit fiber to the premises telecom infrastructure in their communities.

Much of the article goes on to repeat the same points made elsewhere about the flaws of the U.S. telecom paradigm and the sturm und drang industrialized nations are undergoing as they transition from legacy wireline single purpose systems designed to deliver voice and television signals to fiber optic infrastructures capable of providing multimedia and interactive applications using Internet protocol.

The article closes with a bit of wireless vaporware by suggesting Verizon is abandoning its FiOS fiber to the premises service in favor of Long Term Evolution (LTE) wireless service that could deliver 150Mbs. Perhaps over Starfleet Command's quantum sub-space channel. But not in today's world where people are literally jumping into freezing lakes in hopes of getting Google to deploy real state of the art fiber technology to their homes and businesses.

Google's fiber foray: Likely goal is to test alternative business model

Google's demonstration of concept fiber to the premises "experiment" announced last week could represent the start of a major transformation of how consumers receive information in an age where information is increasingly delivered via Internet protocol.

The potential transformation: from the telco/cable business model that brings the bulk of Americans Internet access that due to CAPEX constraints cannot reach about 12 percent of U.S households to the advertising-based business model used for decades by mass broadcasters. Investors provide much of the funding needed for costly transmitters and other broadcast equipment. But advertisers provide another deep and ongoing source of cash to invest in the necessary broadcast equipment to reach consumers.

Google's experiment isn't likely about testing fiber to the premises technology. Fiber is a well demonstrated means of getting lots of bits and bytes to the doorstep with plenty of capacity to spare. Rather, I suspect it's to explore an alternative business model to bring Internet protocol-based services to homes that is to a large degree based on the network broadcasting business model.

Notably, Google's announcement comes as the U.S. government struggles with the inherent conflict of implementing policies to expand advanced telecommunications infrastructure to all Americans while paying homage to the privately owned telco/cable dominated Internet "ecosystem" that makes doing so impossible without substantial subsidies in a time of economic penury.

In the 1960's, mass communications theorist Marshall McLuhan predicted an electronic global village linked together by a broadcast television -- a medium so powerful that the medium itself would be as important as its content. "The medium is the message,” he famously declared. While McLuhan's observation was about TV, in retrospect it applies even more so to the Internet. Google's foray into fiber may well have been undertaken with McLuhan firmly in mind.

Google's fiber to the premise "experiment" a would be broadband game changer

Nearly three years ago, I predicted Internet-protocol content providers and aggregators fed up with trying to pump their product over legacy telecommunications infrastructure dominated by telcos and cable companies would acquire or build their own infrastructure to reach consumers. It's an expected outcome of a conflict between the content providers' needs for ever increasing bandwidth and the telco/cable companies' need to conserve capital expenditures and place incremental limits on bandwidth consistent with their service offerings in which consumers pay increasingly higher rates for more bandwidth. The content providers want unlimited bandwidth delivered over big pipes. But the business model of the telco/cable duopoly is based on making bandwidth a restricted scarce commodity delivered over little pipes.

So it was no surprise when Google -- which has reportedly been quietly buying up fiber left dark after the dot com bust of a decade ago -- announced this week it would build an experimental alternative business model that would bring advanced telecommunications to consumers over a really big pipe: fiber optic infrastructure to the premises capable of throughput of 1 gigabyte per second.

Google is also clearly holding itself as an alternative to the Obama administration's program to build out open access broadband infrastructure subsidized by more than $4 billion set aside in the American Recovery and Reinvestment Act (ARRA) President Obama signed into law nearly one year ago.

The timing of Google's announcement of its fiber infrastructure test program is also worth noting and shows the company is looking to make a statement. The window for applications for the second round of ARRA broadband infrastructure subsidies opens less than a week after Google's announcement. The deadline set by Google for local governments and communities to nominate themselves for Google's experimental fiber build closes the week after the ARRA funding round application window closes as well the deadline for the Federal Communications Commission to submit a plan to Congress to achieve universal U.S. broadband access as required by the ARRA.

While the federal agencies that will hand out the ARRA infrastructure subsidies have made assurances the money will soon begin flowing in earnest, doubts have emerged due to numerous challenges filed against proposed projects by the same incumbent providers Google wants to go around. Google likely figured amid that uncertainty, the timing was right to make its announcement.

With its self described "experimental" fiber to the premises model, Google may also be trying to debunk skeptics who believe fiber to the premises simply costs too much to deploy. That high cost has been cited as the main impediment standing in the way of investment in the fiber to the premises infrastructure that was to have been at the doorstep of every American home by 2006. If Google can show the cost assumptions upon which the business models of the incumbent legacy providers are based are wrong, then the entire game is changed overnight. That potentially puts America on course to catch up to where it should have been four years ago and where it needs to be for the future.

Ma Bell pipe dream: $1 billion in ad revenue in 3 years

Seems that everyone wants a piece of Internet-based ad revenue. Now even the companies that provide the "pipes" that carry the Internet want in on the action, including Ma Bell.

John Stankey, AT&T's president for operations support, told the Reuters Global Technology, Media and Telecoms Summit in New York that advertising could bring $1 billion to Ma Bell's top line in three years time. Stankey said AT&T can reach that revenue goal by virtue of being the biggest U.S. broadband provider, a wireless carrier and most recently, a purveyor of Internet Protocol Television Service (IPTV) via its nascent U-Verse video service.

I think Stankey's time line is far too optimistic given the slow pace of AT&T's U-verse rollout whose functionality hasn't yet been demonstrated on a large scale. Also the company's sluggishness in even upgrading large portions of its service area that must continue to use early 1990s dial up modem technology to access the Internet or the so-called "Molasses Net" -- satellite Internet service -- which AT&T is hawking via a reseller deal with satellite provider WildBlue.

Rather than the pipe providers getting into the advertising biz, the more likely scenario is the media giants like Rupert Murdoch's News Corp. and Web portals Yahoo! and Google getting into the pipes business, partnering with other companies to build their own broadband infrastructure after tiring of waiting on the telco/cable duopoly to expand their networks.

Content providers could make a big play for the pipes

When television was a relatively new technology, mass communications theorist Marshall McLuhan predicted it would produce an electronic global village linked together by a medium so powerful that the medium itself would be as important as its content. Thus, McLuhan famously pronounced in his 1964 book Understanding Media: The Extensions of Man, “the medium is the message.”

If McLuhan were alive today, he’d surely say the same about Internet and with great emphasis. It’s become such a powerful global medium that it’s threatening to reshape TV itself along with other traditional media outlets such as radio and print publications. Because the Internet can transport all forms of communication and do so interactively, it’s arguably McLuhan’s uber medium. It’s no wonder that newspapers, television and radio are paying homage to the Internet, scrambling to get their content on it.

Given the power of this emerging medium, expect to see content providers to take a greater stake in owning Internet infrastructure directly as cable provider Comcast already does. Last year, News Corp. owner Rupert Murdoch complained about the current patchwork state of Internet access, with large numbers of people unable to obtain broadband connections to the Internet. Murdoch and other media titans could end up making plays for telcos and cable companies to speed broadband deployment in order to reach larger audiences for their content.

If they were joined by big Internet content amalgamators Yahoo! and Google, their economic power would be enormous, able to finance a crash program to upgrade the nation’s infrastructure to support near universal broadband access. It’s also quite conceivable that the debate over network neutrality in which the cable and telcos claim they should be able to charge media content providers for access to their systems (net neutrality advocates say they shouldn’t) could provoke media content providers to launch hostile takeovers of big telcos and cable companies. You want to charge us to use your pipes? Forget about it; we want those pipes!

Telcos like Verizon that are putting in fiber optic based systems that offer adequate bandwidth to easily carry all types of Internet content now and in the near future will likely be the most attractive takeover targets. By contrast, AT&T’s strategy utilizing both fiber and its legacy copper cable plant could make it a less attractive target for a media company. But Ma Bell would certainly have to be on the list by virtue of her sheer size and ownership of vast swaths of the nation’s Internet infrastructure.