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When Will the Rest of Us Get Google Fiber? (technologyreview.com)
89 points by MikeCapone on Feb 4, 2013 | hide | past | web | favorite | 59 comments

"The cable distribution giants like Time Warner Cable and Comcast are already making a 97 percent margin on their “almost comically profitable” Internet services, according to Craig Moffet, an analyst at the Wall Street firm Bernstein Research."

Comcast's 2008-2011 mean (standard deviation) operating margin is 20% (0.8 percentage points), pre-tax margin is 14% (1.8 percentage points), and net income margin 9% (1.4 percentage points). This is of note for a purported utility, but not "comically profitable".

Let's observe their most recent quarterly disclosure [1] by business segment. Here we learn that the Cable Communications division, which "consists primarily of video, high-speed Internet and voice services (“cable services”) for residential and business customers in the United States", had an operating margin of 40% and spent 14% of revenues on capital expenditures. We also learn that Cable Networks, which "consists primarily of our national cable television networks, our regional sports and news networks, our international cable networks, our cable television production studio, and our related digital media properties", had an operating margin of 37%.

Where's the money going? Breaking out Cable Communication's costs, 35% went to programming, 35% go to "Other", defined as "business services, advertising, network operations, and franchise and other regulatory fees", 12% to marketing, 10% to technical labour, and 8% to customer service. Also of note, 24% of the division's revenues came from residential high-speed internet (50% came from residential video).

[1] http://www.sec.gov/Archives/edgar/data/1166691/0001193125124...

There's zero reason these fat profiteers are still protected businesses. They're simply parasites on the networks the taxpayers paid for. I recommend as step one to stop paying for things like television and unneeded bundled services.

I'd also like to point out that a VPN is about $40-70 a year. Once you have that up, you're only bound by bandwidth restrictions.

It makes me sick that I have to resort to such things simply to extract fair value from my service and believe me, I'm willing to pay my fair share. I'd spend upwards of $150 a month if I could get a legit Internet/TV bundle. What I'm not willing to do is allow these boring shit companies to get rich off subpar services anymore.

> There's zero reason these fat profiteers are still protected businesses. They're simply parasites on the networks the taxpayers paid for.

It's interesting that you should mention this. Most cities actually sign contracts with service providers. The contract grants the provider access to easements and, generally, exclusivity for the type of service (i.e. only one cable provider/local telephone carrier) allowed to operate in the city).

Convincing providers to bump up speeds and lower costs is going to require cities to kill the exclusivity clause, and encourage competition. Alternatively, allow the cable provider to retain exclusivity, but require fiber upgrades.

This kind of tactic may work better in smaller towns, like mine (Pop. 6000) as residents have very direct access to their city officials, but it's one approach that may work.

Yeah, you're totally right and people would be better off following your advice than mine. Small communities have actually had very good success in strong-arming telecom with the exclusivity contract. In fact, I have a tiny bit of optimism that it might meet success in heavily gerrymandered towns like St. Louis (my area) where most city people actually live in a small incorporated semi-burb. There may be millions in the area, but my actual legal town, Overland, is only 16K residents and has very close ties with the surrounding incorporations. Maybe I should look into starting to attend the city meetings.

I thought that at least here in Missouri[1] and in numerous other states[2], the exclusivity contract is no longer a lever the municipalities have, thanks to statewide franchising laws.

AT&T was the main lobbyist behind these laws during their U-Verse deployment. The statewide franchising would let them deploy U-Verse broadly without having to negotiate with individual city councils (and deal with "sure you can sell cable here, so long as there's free cable for the firehouse, free internet for every school, etc").

With 91 municipalities in St Louis alone, this'd be an expensive barrier to entry for AT&T when they can just buy a state law to avoid it all. The law also lets existing incumbents get out of their franchise contracts with municipalities and go statewide if a competitor enters.

[1] http://www.senate.mo.gov/07info/BTS_Web/Bill.aspx?SessionTyp...

[2] http://www.ncsl.org/issues-research/telecom/statewide-video-...

AT&T got busted trying to test Project Lightspeed (now called U-Verse) in Geneva, Illinois. Geneva figured out that this super-DSL was really and end run around Geneva's CATV franchise agreements and shut it down. That's why they went for the statewide legislative overrides.


Maybe, but no joy getting state wide franchising in Illinois. In fact, 65 ILCS 5 (Illinois Municipal Code) Section 11-42-11 specifically grants municipalities under 2M people (i.e. the entire state except Chicago) the authority to negotiate and execute CATV franchises.

I'm most depressed by the "fast forward to 2006" part of this article, where they mention 3-6 Mbps service being delivered.

Fast forward to 2013, AT&T will still not offer anything faster than 3Mbps DSL to my home, and they charge a princely sum for it.

I can get 30/4 from Charter for the price of that 3Mbps DSL, but Charter's customer service is so awful that it makes AT&T look like Zappos or Nordstrom.

They won't offer >3Mbit or can't offer >3Mbit?

Where I lived, I was so far from the telco that the copper gave out after 1Mbit. And we weren't scheduled for U-Verse. Remember, all U-Verse does is shorten the run of copper wire from your house to the DSL cabinet.

Fun anecdote: Both my home town (Pop. 6,000, central Illinois) as well as my work town (Urbana, IL; Pop. 41,000) have actually had recent success using this line of reasoning. In both cases the cities were looking for improvements in the public access facilities provided by their respective cable providers (Mediacom/Comcast). Urbana had a slightly longer fight, but in the end, both cable companies caved.

It was Urbana's fight in which I came to understand the power of that one bargaining chip and that cable contract negotiations really are weighted in favor of the municipality.

I just signed up for Comcast at my new house this week. I'm getting 105 megabit internet + HD channels and one cable box for $134/month.

Last July I signed up (in Boston) with Comcast for a 20MB (download) internet connection for $35/mo. for the first six months. I knew that was an introductory offer and that it'd be $49/mo. after six months.

What I didn't know (because they didn't mention it at the time) is that after one year it will automatically go up to $65/mo.

$65/mo. for 20MB service is robbery in the US in 2013.

Don't be surprised if your rate doubles after one year.

I was paying about 80$ for 50 megabit a year or two ago around here. I just think the rates here might be a bit better.

I could live with that, but is that a promo deal for a few months or the going rate?

Yeah I think it is that rate for 1 year, then it goes up by $20.

In my area I pay ~$140/mo for the HD channels, DVR, and only 20 megabit

Yeah, that costs $200/mo in my area, not including the TV.

Many people seem to assume that the business proposition in itself is the reason why Google offers FTTH.

I think it should be considered that their main interest might be one of the strategic downfalls of the service (ex. free raw trafic), akin to how GOOG-411 was used to train a voice recognition engine, before terminating it once the training goals were attained.

If it proves to be the case, the media distribution "giants" have nothing to worry about, and people who expect the service to stay might be in for a surprise.

I agree that it's strategic, but I think Google's motive is to set a minimum standard, a catalyst to make the other service providers fall in line. Ie, don't collude to fatten your profits or Google Fibre is going to overtake you.

I think it's sustainable, if the service companies let their margins get too big then it would be a no-brainer profit making move for Google Fibre to expand and undercut them. If not, no skin off Google's back and the increased access to the internet serves their original goals too.

The article kindly submitted here reports slow uptake even for the Google Fiber service, with its attractive pricing and high degree of publicity. "Google wouldn’t grant an interview about Google Fiber—or even give the number of installations (though neighborhood sizes suggest it can’t be more than a few thousand)." The article also details other providers of high-speed broadband Internet access that have yet to achieve large market share even in the areas where they have built out infrastructure (albeit, at higher prices than the prices now on offer from Google). "As of last year, FiOS had about 5 million subscribers (most of whom also take the optional bundled television service)—or roughly one-third of the possible market where the company has strung fiber. But CFO Fran Shammo said in a conference call last fall that there are no plans to expand FiOS beyond those areas. 'At this point we have to capitalize on what we have invested,' he said." The investors in each company are in no hurry to see the company spend more on installing lines or upgrading the signals sent down the lines unless willing customers will sign up for the new service. That's basic economics.

The question asked by the article title, "When Will the Rest of Us Get Google Fiber?" is not answered in the article, except by implication. That answer is "not real soon." People are spending their money on other forms of Internet access, and people are writing to their lawmakers about other issues, and it will take time before there is either market incentive or regulatory nudging to roll out anything faster than the services that already let most residents of the United States watch YouTube continually. The higher speeds will come eventually, whenever many more customers think they are worthwhile.

Slow installations, not slow uptake. Installations started in in mid-Nov. Based on their schedule (http://googlefiberblog.blogspot.com/2013/02/kansas-reminders...), it seems Google can rollout 1-2 "fiberhoods" a week. With 180 fiberhoods, it is going to take a while to get an impressive installation number.

The cable distribution giants like Time Warner Cable and Comcast are already making a 97 percent margin on their “almost comically profitable” Internet services...

That's just begging to be disrupted. If Google or anyone else is willing to take half or one-third (etc.) that margin, they could offer vastly superior service and still turn a healthy profit.

And the natural response of the incumbents, just like in any industry, unfortunately, will likely be legal blockades:

>For example, in 2011, after the city of Wilson, North Carolina, built its own fast network—competing with existing carriers—the North Carolina legislature, amid industry lobbying, passed a law that made it harder for local governments to build networks and prevented Wilson from expanding its network beyond a county line, she said

That's our tax dollars at work, we paid for the subsidies that built out these networks.

But all the incumbents have to do is lower their price just a little bit lower than Google, and Google will never make a return on the billions spent on infrastructure.

That is why Google doesn't really want to become an ISP.

What pisses me off: It takes something like Google to compete with the entrenched oligopoly. And "we" are left waiting on their interest... or lack thereof.

When people finally try to self-organize (e.g. municipal development projects), the oligopoly turns to lawsuits and lobbying to beat them down.

The U.S. is such a hypocritical country. We laud competition, while in actuality we beat it down with ever fewer but larger and more deadly sticks.

Read "Master Switch" by Tim Wu to see how we got from point A to point B.

There's no beef to your argument. The telco oligopolies are the result of two simple factors:

1) Telecom is a field with almost infinite economics of scale, which means that the natural tendency is towards consolidation until there is only one company left. It's the textbook case of natural monopoly.

2) Most of the existing telecoms arose through government-sanctioned monopolies. Those monopolies didn't arise because lobbyists padded the right pockets. Those monopolies arose because rural areas dominate U.S. politics (their votes count about 2x as much when election districts are accounted for). As a result, governments go to huge lengths to make sure that utility providers don't do the most economically sensible thing of concentrating infrastructure in densely-populated areas. One of the measures is giving utilities monopoly rights in return for their servicing rural areas.

The fact that it takes something like Google to take on these interests is completely unsurprising. They are one of the few companies with the dollars to address (1). They are also targeting, so far, only Kansas City (not a megalopolis, but an urban area of 1.5 million people) and thereby dodging (2).

Don't you think Kansas City had a municipal franchise agreement in place with telecom/cable providers before Google stepped in? Surely some modifications had to be made to allow a competing company to lay fiber.

In fact, that probably explains the whole "Hey kids! Get your town to enter the Google Fiber Lucky City Sweepstakes!" that was used to roll Google Fiber out. The winning city bought into the fiber idea so hard that the next step of kicking out the franchise agreements would be a snap.

Google signed one of their own and it looks like the got a pretty sweetheart deal on it: http://www.dslreports.com/shownews/Google-Can-Ditch-Kansas-C...

Lamenting about how political telecom can get is somewhat naive. Of course it's political. It involves digging up public/private property under municipal permission. It invokes the same contentious debates that all infrastructure projects invoke: richer neighborhoods versus poor one, urban ones versus rural ones, "not in my backyard," etc. As long as telecom involves digging up public land or using public spectrum, it will be intensely political.

Digging up yards is something local politicians could care less about. That's why easements exist. They're dug up all the time for electricity, gas, telephone, street lights, etc.

The political tradeoff comes from the franchise agreement. Your citizens want cable tv, and Comcast only wants to wire up the higher-end neighborhoods because they'll buy more services. Is that how you want to be portrayed? So you tell Comcast to make the deal: wire up the whole town, even that neighborhood 3000 feet up the hill, and we'll guarantee that nobody else can interfere with your physical plant investment. Comcast sleeps soundly at night, and so do the politicians.

Franchise agreement == monopoly. Cable TV pays off their 'physical plant' investment in a couple of months, and spends the rest of their years raking it in.

Every small town in Iowa, the biggest house in town? The cable franchise operator.

> They're dug up all the time for electricity, gas, telephone, street lights, etc.

All of those things are done under municipal authority. You can grant Comcast an easement to wire up your house, but what about digging under public streets or across your neighbor's yard?

Also, I don't disagree with the second part, but a fair characterization includes the fact that those people up on that hill have twice the votes per capita as the people living downtown.

You, as a property owner, don't grant easements to utilities. Those are owned by the municipality. You can't delete them.

Where do you think those easements come from? At some point, the municipality agreed to invoke it's eminent domain authority to let some utility lay cables, pipes, sewer lines, etc. That gave that utility a monopoly on service. In return for these monopolies, utilities extracted concessions like requiring the utilities to service everyone.

One of the measures is giving utilities monopoly rights in return for their servicing rural areas.

This is an interesting observation. In South Africa, Telkom, the state monopoly had its monopoly status extended in return for rolling out services to rural areas. What really happened was that cellphones rapidly overtook landlines, and the common perception is that most of the landlines have been stolen and used for copper (although that isn't entirely true, I think, our maid has a cheap line in a rural area). Telkom's monopoly has expired, and it is crumbling, but South African telecoms were set back significantly.

South Africa's telecoms law was written with much input from SBC, an American corporation that bought a stake in Telkom ( http://twentythirdfloor.co.za/2007/08/27/telkom-sbc-and-a-fe... ).

Although most think that there was a purely ulterior motive in granting the monopoly, your comment makes me wonder if they were trying to replicate the de facto American model.

It should be noted that SBC was one of the child companies of AT&T before their anti-trust breakup -- SBC envisioned a new AT&T taking over South Africa, and succeeded beyond their expectations (AT&T was broken up before home internet and DSL even existed).

Somehow, AT&T was allowed to repurchase SBC, so now it's just AT&T again.

> Those monopolies didn't arise because lobbyists padded the right pockets.

Absolute BS. Telecom lobbyists spend millions every year. I imagine they would stop if it were not necessary as you claim.


Competition is great for startups and small organizations, but not for Google, Microsoft, or the government.

Google, and other healthy thriving large companies, love competition. When you already know you're the best in the world, you view competition the way Usain Bolt looks at Tyson Gay. "Come on, bring the noise. All you'll do is help me to beat my own world record, and I like that. So do your worst!"

Note I don't actually know that Usain Bolt feels that way, but many top athletes do (especially in "world record" type sports like racing). And of course this is my personal assessment of the situation, not the position of my employer, etc etc.

True, Google was not the best example since it is still young and entrepreneurial despite being large.

I'm thinking of companies that are hampered by (e.g.) heavy regulation, internal politics and competition, in mature and/or commodity industries.

>When people finally try to self-organize (e.g. municipal development projects), the oligopoly turns to lawsuits and lobbying to beat them down.


EDIT: Okay. Wow. Had no idea. Has any municipality tried to create a wireless mesh network that connected through a few high-bandwidth connections?

How about the first result for "Municipal Fiber Lawsuit"? http://arstechnica.com/uncategorized/2008/09/telco-to-town-w...

There are plenty of other cases, but the OP is right. The telco incumbents will use any means necessary - propaganda ("it's anti-capitalist!"), bribes (aka, lobbying) and lawsuits - to keep extracting as much profit as possible from people while delivering the barest minimum service possible.

Here's two, from a quick search:

Monticello, Minnesota (2008): http://www.ilsr.org/monticello-fiber-network-fighting-frivol...

Lafayette, Louisiana (2010): http://arstechnica.com/tech-policy/2010/05/lousiana-fiber-ne...

I have friends down the road in MN and the speeds are amazing! They covered a pretty good chunk of homes at launch too.

This is so absurd. So basically US is not a democracy. From networks to cabs, everywhere these companies need protection from disruption. But if Uber can do it in cab services, can't all Cities group together and fight ?

Yes, the U.S. isn't a democracy because NYC gave cab companies a service monopoly in return for agreeing to serve poor people in the Bronx.

This isn't directly related to what you're asking, but "The Great Verizon FiOS Ripoff" addresses another aspect of the basic problems in the broadband market: http://www.huffingtonpost.com/bruce-kushnick/the-great-veriz... .

I have EPB Fiber here in Chattanooga, TN. I currently pay for the 50Mb service which usually runs on faster than that and is symmetrical. I started with 15Mb and since March 2009, they've bumped the speed up from 15 to 30 to 50. My friend has 100Mb service through them, which I'm considering since switching too since the cost isn't that much more, I'm finally setting up a wired NAS box, and my household no longer has cable TV, instead using the Internet for our media consumption.

With current technology, I wouldn't complain about 1Gb speeds, but 50, let alone 100, is still pretty damn quick. An HD TV show at just over 4.6GB took just over 13 minutes to download; in the process, practically saturating my wifi connection (which I've found to be the more limiting factor in my Internet speed).

So, fiber: yeah, it's awesome. But I'd wager that stupid-fast speeds aren't necessary for most people for a while, and until 802.11AC or faster has market saturation, it won't be.

Answer: Never.

As much as I would love to get rid of the shitty overpriced service I have, it isn't going to happen.

Google needs to have something of a service so they can keep their finger on the pulse. When Google knows how much it costs to provide service then they can negotiate better for their position within the oligopoly.

Google is going to be able to sell personalized advertisements in TV shows. Forget targeting networks or shows, Google can hit exactly me, complete with all my search history.

At the beginning, they're only going to have a few ad slots to work with, but the next step will be to negotiate with the ESPNs/Discovery Channels/MTVs to expand the number of ad slots they personalize. (Advertisers are going to demand it, since this blanket show the same ad to everyone watching is incredibly dumb.)

If the cable companies had their act together they'd have done this years ago, but a few minutes with my cable box convinces me they're no where near able to pull this off.

Google is going to make a killing.

> "Google is going to be able to sell personalized advertisements in TV shows. Forget targeting networks or shows, Google can hit exactly me, complete with all my search history."

I'm all for disrupting the oligopoly that cable companies set up, but this point you're making in particular (ie. ultra-personalized TV ads) is not something I'm looking forward to.

All of this is just one of the reasons I would never use Google as an ISP.

If Google does it, you can be sure every other company will jump on the wagon as quickly and haphazardly as possible.

Not just Google Fiber, I want to know when the rest of us will be able to get the Nexus 4. It was released in November/December and they are still sold out on Canada's Google Play website.

I wanted to get one for April when my current Bell contract runs out and then use it with Wind Mobile but it doesn't seem like I will be able to get one in time.

It's back in stock now. Ships in 2-3 weeks. https://play.google.com/store/devices/details?id=nexus_4_16g...

Point of reference: I ordered mine and had it 3 days later.

If someone wants to do something like this in santa clara, the economics don't work out for single family homes, but it would work for the larger apartment complexes, at least if I had someone else to do sales and inside wiring. I'm already sitting on the santa clara municipal fiber ring for other reasons.

tl;dr: Google isn't saying for sure, other than that Google Fiber isn't a "loss leader or publicity stunt."

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