Monday, July 30, 2012

How Big are Google Fiber Subsidies?

Google says it aims to make a profit offering Google Fiber services in Kansas City, Kan. and Kansas City, Mo., despite offering symmetrical 1-Gbps broadband access at $70 a month, and free access at 5 Mbps for a minimum of seven years (users of the free service pay the
$300 drop installation and connection fee). 

Some have wondered whether Google Fiber can achieve its goals, and if so, what the "secrets" of its cost savings might be. It appears there are some savings, though it is not by any means clear how important those savings might be. 

Google gets free central office space; free power; no charge for access to the City’s assets and infrastructure; no charge for rights of way, permits and inspection fees; settlement-free interconnections with anchor institutions; free marketing and direct mail, and even free office space for Google employees. 

Some might argue that Google has shifted much of the cost of its business to the Kansas City taxpayers, some would argue. Some of those savings mostly affect the one-time cost of network construction. 

The free facilities will save some money, and the ability to avoid paying for power likewise will help control operating costs. Google also will presumably gain some benefit on the marketing front. 

Still, none of those categories would seem to offer a decisive cost advantage. Also, Google Fiber is talking on some costs for which it will receive no revenue, especially the free 5 Mbps it plans to offer for seven years. 

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