Google’s groundbreaking Fiber program, which offers 1 gigabit-per-second broadband for just $70 per month, has thrived because it takes a different approach to deployment that incumbent ISPs have been reluctant to embrace. Fiber’s success, however, has already caused other ISPs to change their approach to broadband deployment, according to a recent Wall Street Journal report. Eventually, this shakeup in broadband services could create an entirely new form of competition in the broadband market.
Federal policies on the availability of wire and radio services created in the 1930s, and updated for cable TV in the 1960s, required service providers to cover entire geographical regions indiscriminately. The idea was to ensure that no part of a city went without access to the communications services that would soon become essential for both businesses and consumers. This led to the longstanding regional monopolies that many cable and internet service providers still hold (and under which many customers still suffer) to this day.
Congress updated these policies in the 1990s in an effort to speed up the deployment of internet connectivity, allowing service providers to compete in certain regions that might be more profitable. Although some have used this approach in some way – say, underserving rural areas with low populations – none have capitalized quite like Google did when it introduced its Fiber program in Kansas City, Kansas, and Kansas City, Missouri, in 2011. Google identified profitable areas within these cities in which to deploy its Fiber service – what are now referred to as “fiberhoods” – and spent less time on those that were less likely to provide a return on its investment. The Journal explained in a recent article:
If interest exceeded a certain threshold, generally between 5% and 25% of households, Google connected the area. The threshold varied based on population density. Google also worked with local officials to speed the permitting and construction process. It skipped some areas entirely, because they were too thinly populated or because of construction challenges, a company spokeswoman said.
To date, Google has conducted preregistration in 364 neighborhoods; all but 16 hit Google's threshold for connection. Google hasn't disclosed how many homes in each neighborhood subscribe to its service.
A survey earlier this year of five neighborhoods in the Kansas City area conducted for brokerage firm Bernstein Research found that more than half of households had signed up for the service. At that rate, the service would be "very profitable" for Google, Bernstein analyst Carlos Kirjner said.
What the Journal is calling the “selective approach” has begun to catch on among competitors. Roughly seven months after Google announced its intentions to bring Fiber to Austin, Texas, AT&T announced its own 1-gigabit offering in Austin. There, the company is “building to demand and working with local authorities to reduce construction costs,” according to the Journal report.
Verizon, which has already spent more than $23 billion on its FiOS deployment and stopped expanding to new cities in 2010 on account of costs, admitted that it would consider adopting the selective approach as a more profitable method if it were to resume the expansion of FiOS, the Journal reported.
This approach does include its caveats. Although Google and AT&T have both agreed to provide free broadband services, albeit lower-performing services, to poor areas of the cities in which it is building to demand, one area nonprofit told the Journal that Google is not doing enough for Kansas City’s underserved markets. Other cities, such as Los Angeles, have completely rejected the selective approach, instead soliciting contracts for city-wide gigabit broadband services.
Another potential issue is the growing presence of municipal broadband projects. Several municipal projects across the country have shown the ability to provide low-cost gigabit services to both businesses and consumers. Google may offer high-performance services at a low cost – not to mention with less of a strain on public funding and resources – but in areas where public officials are concerned that private ISPs could eventually widen the broadband access and technology skills gaps in their cities, municipal broadband could be a trump card. If the ISPs that build to demand are aware that the cities they’re hoping to serve could instead build their own networks, they’ll be more inclined to provide services where they’re needed. And if they don’t, word of the failure is likely to spread, and the ISPs could lose out to homegrown services in other areas that hear about it.