Friday, December 19, 2014

Google Delays Next Google Fiber Decisions

Google is delaying any announcement of  the next possible Google Fiber markets until 2015, a move that is not necessarily unusual, for a firm new to the business of building expensive and laborious local access networks.

The delay affects Portland, Ore., in addition to other areas including  Atlanta, Charlotte, Nashville, Phoenix, Raleigh-Durham, Salt Lake City, San Antonio and San Jose.

To be sure, a number of other potential Google Fiber gigabit network deployments also seem to be on hold, at least until early 2015.

In February 2014, Google Fiber announced that it was exploring further expansion into nine metro markets, adding to operations in Kansas City; Austin, Texas; and Provo, Utah.

At least in part, Google might want to spend a bit more time figuring out how to efficiently build multiple networks at once. There is a learning curve, even for experienced suppliers of optical fiber access networks, and Google might want to ensure it has optimized its processes.

But there might also be other complications. In at least one of the potential markets--Portland, Ore.-- unfavorable tax laws might soon be revised.

Tax rate uncertainty or high tax rates almost always have the effect you would expect, namely a more-cautious attitude towards investment.

But scaling major construction projects efficiently, in jurisdictions with differing rules, also is an issue. Even veteran companies with a long history of local access network construction have found there is an experience curb for fiber-to-home projects.

“I joined AT&T in 2008 and I remember around 2012 looking at some charts and the cost of speed hadn’t really had a breakthrough, because 80 percent of your deployment in broadband is labor based,” said John Donovan, AT&T senior executive vice president for architecture, technology and operations.

“And then all of a sudden you have vectoring in small form factor stuff and all of a sudden a little bit of an investment by our supply chain a few standard things and we start to take a 25 meg on a copper pair and then we move it to 45 and then 75 and then 100 which is on the drawing board,” said Donovan.

The point is that the underlying technology used by cable TV operators and telcos has been continually improved, providing better performance at prices useful for commercial deployment.

Operating practices also are becoming more efficient. Google Fiber has been able to work with local governments to streamline permitting processes and other make-ready work in ways that can lower costs to activate a new Internet access network using fixed media.

Google Fiber also pioneered a new way of building networks, getting users to indicate interest before construction starts, and building neighborhood by neighborhood, instead of everywhere in a local area.

That changes gigabit network economics. As has been true for nearly a couple of decades in the U.S. market, for example, competitive suppliers have been able to “cherry pick” operations, building only enough network to reach willing customers, without the need to invest capital in networks and elements that “reach everyone.”

That makes a big difference in business models. A network upgrade that might not have made sense if applied across a whole metro network might well make sense in some parts of a city, where there is demand.

Also, every new supplier of Internet access goes through a learning curve, generally operating inefficiently at first, but improving as experience is accumulated.

“And then we are getting better at the deployment side of the business as well,” said Donovan. “So our average technicians and our best technicians are converging.”

It is possible Google simply wants to be sure it can build in multiple areas effectively and efficiently. But a favorable change in tax laws in Oregon might also be an issue.

Some might conclude that Google, perhaps under pressure to control costs and improve profit margins, might also be evaluating how much money it wants to spend on Google Fiber, as well.

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