What Would it Take for Google Fiber to Attract Investors Formerly Funding Cable and Telco Networks?

A reasonable argument can be made that the actual primary and intended purpose of Google Fiber is to cause other major ISPs to vastly increase their own investment in access networks.

But there could be other eventual outcomes. Google Fiber might become something else, namely a sustainable business. You might argue that Google would not want the huge distraction of creating a huge new ISP business.

But it might not have to. Google Fiber could conceivably become so successful that it could attract the same sorts of investors that traditionally have invested in telco or cable TV networks.

Google Fiber potential hinges on penetration rates, one might argue. In other words, if Google Fiber does only as well as the best traditional “overbuilders,” getting possibly 20 percent of homes as customers, it might be a sustainable business, but just barely.

But if Google Fiber were to reach much higher levels of adoption, up to perhaps 50 percent, it would have financial prospects vastly better than any other overbuilder has achieved.

Google Fiber's core network will cost between $674 and $500 per passing, the former representing Kansas City, Kan. costs, the latter Kansas City, Mo. costs.

It will cost Google $464 to actually connect an Internet access customer, and $794 to connect a customer buying both video and Internet access. Those figures are roughly in line with what other telcos might expect to invest in a similar market.

The key variable is degree of customer penetration, not so much cost of infrastructure.

Assume it costs $600 to build the network passing every location, and then about $450 to connect each actual customer.

At 20 percent penetration, the cost per customer is $450 plus the value of the capital invested to build of the rest of the network that is not serving actual customers. At 20 percent penetration, that means the cost of the network per customer is $3,000. So the cost of serving each customer is $3,450.

For simplicity, ignore the potential value of customers who opt for the “free” access option, and the potential value to Google Fiber if each of those “free” nodes includes a public Wi-Fi element.

At 50 percent penetration, the cost per customer (including both network and customer premises capital) is $1650. At 50 percent adoption, revenue is more than twice as high as at 20 percent penetration and capital investment per customer is nearly 50 percent lower.

Were Google Fiber to reach 50 percent penetration, profit margin might also improve by as much as 100 percent over the 20-percent penetration level.

That might make Google Fiber something that can be replicated on a wide scale, attracting the same sorts of investors that previously might have funded telco and cable TV networks.

Internet Speeds Have Grown 10X Every 5 Years Since 1990

Access speeds in the U.S. and other markets have grown by an order of magnitude (10x) every five years, since about 1990. If you assume that speeds were about 10 Mbps in 2010, that suggests U.S. consumers will be buying 100 Mbps services by about 2015, and could be buying 1 Gbps services by 2020.

That will be a shock for most ISPs, but would simply follow the pattern of typical bandwidth since 1990.

And that is just what some Internet access speed forecasts would predict. As a rough rule of thumb, speeds have increased by about an order of magnitude every five years.

Availability of 100 Mbps services grew even more: 448 percent between 2010 and 2012. Availability of 50 Mbps services grew 160 percent between 2010 and 2012, the

NTIA study found. 

Australian access speeds show the same trend, with access speeds doubling about every five years.

In August 2000, only 4.4 percent of U.S. households had a home broadband connection, while  41.5 percent of households had dial-up access. At that time, the effective price for a 1-Mbps connection might have been $234.

A decade later, dial-up subscribers declined to 2.8 percent of households in 2010, 68.2 percent of households subscribed to broadband service, with effective prices per Mbps of perhaps a couple to a few dollars.

The availability of 100 Mbps to 1 Gbps Internet access services grew the fastest, from 2010 to 2012, according to a new study by the  National Telecommunications and Information Administration (NTIA). Though growing from a low base, availability of 1-Gbps services grew nearly 300 percent between 2010 and 2012.

For Apple, "Winning" is Device Sales; For Google "Winning" is App Usage

There is some value in knowing the percentage of all mobile phones that are "smart," because that tells us something about the shape of "computing." But over time, all phones will be "smart," so the importance of "smart phones," as compared to "use of phones," ultimately will prove less relevant. 

Nor, in one sense, do all suppliers approach the "smart phone" market the same way. 
For Apple, which always has made money selling devices, revenue and profit margin matter. Samsung's concerns are similar. 

For Google, what matters is the base of users of its applications. And despite the ISP concern about "share of revenue" within the Internet ecosystem, one fact remains. As has been the case since the advent of the dial-up access market, the overwhelming share of revenue earned within the ecosystem is garnered by access providers. 

2013 05 BEA - ’Mobile is eating the World’ from bge20

Disruptive Internet Access

Internet service providers many places in the world must operate disruptively, simply because they cannot afford to invest as much as has been the case in the tier one service provider business and also typically must operate at challenging levels as well.

That means creating services at vastly lower costs, faster than possible in the past, and sometimes designing networks that operate very differently from networks traditionally built to provide communications services, as well as operating at far lower costs.

None of that is to deride the role mobile service providers are likely to play as providers of widespread Internet access in virtually all markets. But mobile access (coverage) also typically must be augmented by high-capacity access as well.

In some cases, that might mean non-traditional antenna platforms, such as balloons, could be part of the solution. Space Data, for example, has been using such an approach to provide telemetry services to customers in the energy and transportation business.

Space Data also supplies its platforms for military applications. Google reportedly has seen promise in the approach.

Other technologies could be important as well. But some believe the balloon approach could be valuable in developing regions, functioning cheaply, but almost like low orbit satellites.

People have been looking at using balloons for communications for at least a decade.

For some, the approach will be unsettling. The balloons are unguided. They can stay online for perhaps 24 hours before self-destructing. But many disruptive technologies are like that. And the normal path of development is for a disruptive technology that doesn’t offer the full advantages of a legacy technology to progress, gradually adding more and more of the features of the legacy service.

If balloons can create a bigger market for retail Internet access, then the rest of the backbone infrastructure also will improve to meet the demand. And that better backbone infrastructure will allow additional local access platforms to reach commercial thresholds.

That's one element of disruptive Internet access: extending access at a minimum level. The other element is disruption of the high end of the access business. It appears Google will work both ends of the spectrum.

Price, Not Availability, is 100-Mbps Problem

The real problem with very high speed (100 Mbps or higher) Internet access in the United States is the cost, not the availability, one might argue.

Some 82 percent of U.S. homes can buy Internet access of speeds of at least 100 Mbps, from a cable operator. About 18 percent of homes can buy fiber to home services.

Vectored DSL might allow many telcos to offer 50 Mbps to 100 Mbps, even if fiber is not pulled all the way to the home.

At least 235 U.S. service providers offer services at 50 Mbps or more, 136 offer 100 Mbps or more and 64 offer gigabit speeds. Most of the 100 Mbps and gigabit providers focus on the business market, given the retail prices, it is fair to say. But most cable operators happily sell 100 Mbps to consumers.

The issue really is price. Not many consumers are willing to pay $110 for a 100-Mbps connection bought with a triple play offer, or $200 on a standalone basis. In the past, such services cost as much as $300 a month.

The good news is that prices per Mbps prices per Mbps have been dropping as headline speeds have grown. Google Fiber has a cost per Mbps of about seven cents, where many offers have costs of $2 or more per Mbps of speed.

Gigabit Access Availability Grew 300% from 2010 to 2012

The availability of 100 Mbps to 1 Gbps Internet access services grew the fastest, from 2010 to 2012, according to a new study by the  National Telecommunications and Information Administration (NTIA). Though growing from a low base, availability of 1-Gbps services grew nearly 300 percent between 2010 and 2012.

Availability fo 100 Mbps services grew even more: 448 percent between 2010 and 2012. Availability of 50 Mbps services grew 160 percent between 2010 and 2012.

Services operating at 25 Mbps, arguably the speeds most consumers tend to buy, grew about 57 percent, in terms of availability.

Availability of lower-speed services has reached virtual ubiquity. Some 98 percent of U.S. residents can buy Internet access at speeds of 3 Mbps or greater and upload speeds of 768 kbps or greater.

About 91 percent of U.S. residents can buy access at 10 Mbps downstream. Some 78 percent can buy access services operating at 25 Mbps downstream.

Also, about 81 percent of U.S. residents can buy mobile broadband access at speeds of 6 Mbps or greater.

And nearly 26 percent of the population can buy fixed wireless service with download speeds at 6 Mbps.

Up to this point, cable operators have been the primary providers of high speed access services of at least 25 Mbps or greater but less than 1 Gbps. That should start to change as more telcos begin to upgrade to networks offering speeds up to 1 Gbps.

Still, at the moment, 82 percent of U.S. homes have access to speeds in excess of 100 megabits per second, while in Europe, only two percent of the population has access to these speeds, Comcast notes.

If You Want High Take Rates for High Speed Access, Price Matters

Price matters, Verizon has found. By making it easy for consumers to upgrade FiOS Quantum high speed access services to 50 Mbps for an incremental $10 or $20 a month, Verizon is seeing a "huge take rate," said Fran Shammo, Verizon Communications CFO.

"With the tools that we have with FiOS and delivering messages to our consumers on the TV or on their broadband connection, that they have the ability to just click and upgrade to 50 megabits for an extra $10, we are seeing a huge take rate on that click," Shammo said.

To be sure, Verizon often has very good reasons for wanting customers to upgrade. As it converts customers fro digital subscriber line to FiOS, it must allow consumers to keep the legacy price. So that generally means a former DSL customer gets the 25 Mbps service, for the same price as the older DSL. 

That effectively means Verizon has invested in FiOS but is unable to reap any incremental revenue for doing so, in terms of high speed access. The upgrade offer allows Verizon to generate some incremental revenue. 

In fact, Shammo suggests the upgrade policy is driving four percent growth in consumer revenues, year over year. 


Shammo also says Verizon believes use of Long Term Evolution in place of fixed access can work in rural areas, but not in urban areas. What Verizon found from its tests of LTE-plus-DirecTV was that data consumption was so high that mobile network performance suffered.

The other issue is that LTE will not deliver the 50 Mbps or 100 Mbps access Verizon believes will be needed in urban areas. 

The larger point is that price matters, when ISPs try to migrate consumers to higher-speed service plans. Take rates for 50 Mbps, 100 Mbps or 1-Gbps service plans can be significant, when retail prices are deemed to offer value. 

The point is that take rates will not be too high when prices are in the $100 a month rate. Take rates climb dramatically when the cost of a much-faster plan is only $10 or $20 a month over the existing basic plans. 

Where it comes to very high speed Internet access, price really does matter.

In August 2000, only 4.4 percent of U.S. households had a home broadband connection, while  41.5 percent of households had dial-up access. At that time, the effective price for a 1-Mbps connection might have been $234.

A decade later, dial-up subscribers declined to 2.8 percent of households in 2010, 68.2 percent of households subscribed to broadband service, with effective prices per Mbps of perhaps a couple to a few dollars.

That suggests what will happen, eventually, with take rates for 50 Mbps, 100 Mbps or 1 Gbps services. As prices per Mbps of service drop sharply, take rates will climb rapidly.

Up to this point, most consumers have not felt the need to upgrade to the fastest available speeds, in part because retail prices reflect costs per Mbps of service that are seen as “too high.”

In the U.K. market, for example, though service at 30 Mbps is available to at least 60 percent of homes,  buy rates were, in mid-2012, at about seven percent (to say nothing of demand for 100 Mbps).

But price arguably has much to do with the resistance. By June 2012 about 75 percent of U.S. households could buy a service of at least 50 Mbps, while half could buy service at 100 Mbps. Relatively few chose to do so.

For the sake of argument, assume a price per Mbps of $3. That implies a 20 Mbps connection would cost about $60 a month. Typically, the faster a connection is, the lower the per-Mbps price actually becomes. So assume a $1.50 per Mbps price for 50 Mbps services. That implies a monthly price of $75  a month.

A 100-Mbps service might sell for about $1 per Mbps, implying that a 100-Mbps service costs $100 a month.

Google Fiber, of course, deliberately disrupts those pricing metrics, offering 1,000 Mbps for $70, or seven cents per Mbps.

When price per Mbps of service drops two orders of magnitude, most people will upgrade to much faster service.

Top Countries for Mobile Payments Potential

Singapore, Canada, the United States, Kenya, South Korea, Japan and the United Kingdom are among the countries where mobile payments are poised to get traction, according to Business Insider.

The index measures the ability to completely replace use of credit and debit cards with mobile devices. But each of the countries ranks high in terms of readiness for different reasons.

Access is where Singapore shines. It  has 100 percent mobile coverage, while 70 percent of the nation’s residents have internet access and 68 percent own a mobile phone.

Canada, according to MasterCard, has the best cooperation among mobile networks, financial institutions, and government agencies. Plus, Canada is the global leader in Internet penetration with 82 percent of consumers online.

The United States has the most mobile-payment potential, in terms of household spending per capita, at $33,000, the highest in the world.

Kenya already has 68 percent of residents frequently using mobile payments, more than in any other nation.

South Korea is notable because Koreans use mobile payments to transfer money between two individuals about three times more often than they do to make point-of-sale purchases.

Japan has potential because, on average, each person in Japan has 14.98 credit or debit cards, creating a huge opportunity for displacement.

The U.A.E. is the global leader in business adoption of new technologies.

The United Kingdom makes the top of the list because of its extremely high household mobile-phone (85 percent) and Internet penetration (80 percent).

Saudi Arabia has potential because more consumers who use mobile payments are making point-of-sale purchases in Saudi Arabia than in any other country.

China potential comes from its sheer population size.

Negroponte Switch for Mobile Traffic?

To the extent that tablets and smart phones are displacing time formerly spent with PCs, there is potential for a shift in demand for access from mobile and fixed networks. That's what offloading of mobile traffic to Wi-Fi networks is all about. 

On the other hand, users also are shifting application use formerly occurring on PCs to their smart phones and tablets. So some traffic formerly on the fixed network is loaded to the mobile network. 

But the composition of the traffic is uneven. Where once television was delivered "over the air," it has over the past several decades moved to the fixed network, while "narrowband" traffic (voice and messaging) has moved to the air (mobile networks). 

Some might remember that this was known as the "Negroponte Switch." 

Something along similar lines is happening with "mobile" traffic. The bandwidth-intensive applications, especially video, is moving to the fixed network. The real-time communications traffic (chat, messaging, voice) and real-time application traffic (navigation, some transactions) is moving to the mobile network. 

"Wi-Fi-Only" Works About Half the Time: Issue is What Might be Possible in Future

Historically, the big value mobile phones represented was the untethering of "calling" from places. In fact, so great was the value that mobile calling displaced less expensive place-based calling. 

More recently, the value of a BlackBerry was the ability to use email anywhere. In the latest iteration of the untethering trend, people now expect to be able to get access to the Internet anywhere they are. 


But there is another trend happening as well, namely that people find it useful to shift Internet app consumption to stationary or fixed modes, to avoid mobile Internet access charges. In other words, mobile networks are for mobility, fixed networks are for capacity. 

And since perhaps 80 percent of Internet data consumption now occurs "indoors," capacity increasingly has become the value, rather than mobility, even for mobile devices. 

That is not to say nomadic access is not important, only that essentially tethered access has become more important. Just how important remains to be seen. 

Generally, one might say that "synchronous" or "real time" communications and apps benefit from "anywhere, anytime" access. Asynchronous apps and communications (email, voice mail, blog and social posts) can tolerate some periods of disconnection, and are better suited to place-based access. 

So the issue is the degree to which growing use of asynchronous apps means access can be useful if it is "not always connected," as is the case for any user relying on devices with Wi-Fi access only, and not full mobile network access. 

At least so far, voice and messaging devices (phones) have benefited from "anywhere, anytime" access. PCs and now tablets often can provide high value even when connectable only sometimes. 

The big zone of uncertainty is whether smart phone Internet access demand will change to any great extent. The possible change is voice and messaging on the mobile network, with Internet access mostly or even exclusively based on Wi-Fi access. 

Smart phone owners know they can use Wi-Fi access inside and outside the home, and there is a financial benefit to doing so.

Mobile service providers also realize they can avoid capital investment by encouraging their users to switch their devices to Wi-Fi whenever possible, as well.

Voice-based or communication-based applications generally are not the best candidates for “Wi-Fi-only” networks. But tablets, PCs and Chromebooks are a different matter. And smart phone Internet access already is a case where mixed access is the norm. That already is allowing creation of business models based primarily on fixed access (Wi-Fi) with a mobile overlay.

34 Percent of Global Tablets will be Cellular Connected by 2017

BT, for example, appears to be thinking along those lines.

Having won 4G spectrum (2x15 MHz of FDD and 20 MHz of TDD 2.6GHz spectrum), BT suggested it would not build a retail mobile network, but use 4G to augment BT's fixed networks.

Now BT says it will launch its own retail network.

The thinking is that BT will source wholesale mobile connectivity from one of the U.K. mobile service providers to provide full mobile access, while using its own spectrum largely for fixed or location access.

That is analogous in many ways to the ways mobile service providers already blend full mobile access plus Wi-Fi access. The potentially big challenge is whether it might eventually be possible to create 

Wi-Fi only  

access services that have high value even if there is no mobile access, as once was thought feasible around the turn of the century. 

Those of you who travel outside your home country already do this: you turn off your mobile Internet access and rely only on  

Wi-Fi  

when out of country. 

Lower Prices Spur India 3G Data Consumption

Mobile data traffic on India’s 3G networks grew 196 percent between December 2011 and December 2012, according to Nokia Siemens Networks. Mobile data traffic on 2G and 3G networks grew 92 percent over the same period, while 2G network traffic grew 66 percent.

According to the study, each 3G user currently consumes close to 300 percent more data on an average than a 2G user. Currently, a 3G user consumes 434 MB per month on an average while a 2G user consumes 115 MB per month.

In the first half of the research period, December 2011 to June 2012, data traffic generated by 3G services increased by 78 percent while that of 2G services increased by 47 percent.

In the second half, July 2012 to December 2012, data traffic generated by 3G services increased by 54 percent while that of 2G services increased by 18 percent.

Lower 3G prices contributed to growth of 3G usage, Nokia Siemens says.



Robust competition probably will ensure that prices continue to drop. 

"Build Where the Demand is Greatest" Even if "Universal Service" Suffers

One key innovation Google Fiber has brought to the construction of fiber to home networks is the “build first where there is greatest demand” principle.

Veterans of the telecom and cable TV business immediately will recognize that this flies in the face of established precedent that “universal service right now” is more the legacy principle. But proponents of gigabit networks already have moved to embrace the idea of “building where you can, right now” as a way to stimulate the building of gigabit networks on a wider basis.

That might now be the thinking of analysts at Point Topic, looking at building of new 30-Mbps networks throughout the European Union. In other words, the greatest progress, at the lowest cost, will happen when urban networks get built first, rather than giving priority to rural areas.

But analysts at Point Topic also do estimate it will cost far less than previously estimated to provide 30 Mbps service on a ubiquitous basis across the European Union.

Point Topic estimates it could cost €82 billion, though other estimates have ranged as high as that produced by the European Commission of €180 to €270 billion.

The FTTH Council quotes an estimate of €202 billion as the total cost of meeting the Digital Agenda targets with fiber-to-the-home networks.

The Point Topic estimate is dominated by the €52 billion cost for reaching rural areas, defined as those areas with a population density of less than 100 persons per square kilometer.

Covering the semi-rural areas, home to 15 percent of the EU’s population, would cost another €22 billion.

Completing coverage in the urban areas, those with a population density of 600 per square kilometre or more, would cost only €8 billion and reach 71 percent of the population.

That new estimate illustrates the problem all fixed networks face, namely the high cost of building networks in areas of low population density.

The cost of rural networks also accounts for the country by country costs of construction.

France has the biggest requirement of all at €17.5 billion, whereas the United Kingdom, similar in population but with only 37 percent of the land area, needs only €7.5 billion to build its national network. The reason is the higher percentage of rural areas in France.

The key insight here is perhaps not that the actual cost of building a fiber to home network has changed significantly. But there is a seemingly growing practical realization that high-capacity networks need a business model, and that model probably only works well in some neighborhoods in any given city.

Other initiatives such as Gig.U use the same principle, recognizing that gigabit networks cannot be build, or sustained, everywhere, right now.

But Google Fiber will test whether it is possible to operate at dramatically lower costs, or with a new business model, depending on take rates for a disruptive value proposition.

Order of Magnitude Lower Mobile Base Station Costs?

An order of magnitude lower costs is the sort of cost reduction that often is crucial in getting Internet access or communications to users in developing regions. Lower power consumption and simplicity also are advantages, and all of that seems to be what Range Networks is after.

Using an open source software approach to costs, Range Networks hopes to provide mobile network infrastructure adapted to the requirements of developing regions.

A low cost single tower mobile service is enabling communities in rural Papua, Indonesia, for example, in a location a four hour drive away from the nearest mobile tower.

The deployment is a collaboration between cellular systems provider Range Networks and the UC Berkeley Technology and Infrastructure for Emerging Regions (TIER) research group.

The deployment uses a satellite connection to reach the backbone telecom networks, but all local traffic (the network can reach a neighboring village one mile distant)  is handled essentially peer to peer, avoiding use of the backhaul.

You Aren't Just a Customer: You are Becoming the Product

In terms of business model, users of "no incremental cost" applications, supported by advertising, make the user the product. Now subscribers to mobile services are similarly becoming the product, as carriers sell marketing data, at least at a "subscriber non-identifiable" level. 

Precision Market Insights offers businesses such as malls, stadiums and billboard owners statistics about the activities and backgrounds of mobile users. 

A Processor View of "Post PC"

At the processor level, here is one way of looking at the "post PC" trend. Because of a fall in sales of PCs, AMD has fallen from the number-two spot for processors to the fourth position, in terms of market share. 

Qualcomm and Samsung moved up, both on the strength of sales of mobile processors. 

AMD's market share dropped 21 percent, year over year, between 2011 and 2012, while Intel dropped one percent. Samsung, which supplies processors for Apple, among others, grew share 78 percent, while Qualcomm grew share 28 percent.