How Does Google Fiber Compare, as an "Overbuilder?"

It is difficult to say what level of customer success Google will have to achieve, overall, in Kansas City, Kan. and Kansas City, Mo. to make Google Fiber a sustainable proposition. The difficulty lies partly in the service suite, partly in the pricing and partly in end user behavior and competitor response.

Many overbuilders offer a triple-play package of voice, Internet access and video entertainment. Google Fiber sells only broadband access and video entertainment. So where some overbuilders have three potential revenue items, Google Fiber will rely on just two.

Also, Google Fiber is offering a "free" access service in addition to the for-fee 1 Gbps service, and it remains unclear how the balance of "subscribers" will work out. Other overbuilders count only paying subscribers, but Google will have some as yet undetermined number of non-paying customers as well.

Also, Google Fiber will likely earn less gross revenue from its video services than most overbuilders, simply because it has elected to offer a more-affordable package that costs less than the typical video entertainment service. 

Other overbuilders arguably might expect to achieve 10 percent to 15 percent video penetration, and perhaps 10 percent to 15 percent broadband access penetration, plus some additional share of voice service customers. The new math consists in getting a high enough sale of service "units" to boost revenue into the $100 a month range, on average. 

Granted, some overbuilders have done better than that. But it is pretty tough these days, with established telco, cable and satellite competitors, to do much better. 

Google clearly will be able to hit such minimum thresholds if a customer buys the 1 Gbps access service plus video. But not all customers will do so, and Google also has the operating cost of providing free broadband to some percentage of homes. 

For its part, Google likewise is trying a different tack to its actual construction activities, essentially trying to use a pre-registration program to estimate where initial take rates will be the highest. 

Basically, Google has residents "voting" for Google Fiber by pre-registering and making a payment of $10. 

Each of of the potential "fiberhoods" then has a minimum threshold of pre-registrations that qualify the fiberhood for construction. Until the threshold is reached, construction is not contemplated. 

Google has had to create different thresholds for different fiberhoods, and now has tweaked the algorithm just a bit to account for some inaccuracies in the databases Google built from a variety of sources about the actual number of potential residences in a fiberhood. 

So Google now adjusts the "potential homes passed" part of the algorithm to deduct vacant lots, abandoned homes and also adjust for large apartment buildings, as distinct from single-family homes.

The changes slightly affect 73 fiberhoods, boosting the percentage of sign-ups in some of the fiberhoods and therefore slightly increasing the likelihood that some fiberhoods will qualify for actual construction. 

Some 40 out of 74 fiberhoods now qualify. In Kansas City, Missouri while  75 out of 128 fiberhoods have now reached their goals as well. 

Depending on neighborhood, it appears that between 20 percent and 35 percent of homes passed is the goal Google is pursuing. If all those pre-registrants actually wind up buying a paid  service, then Google would quickly achieve an impressive penetration level for an overbuilder.