Google will experiment with becoming an Internet Service Provider by building out a super-fast fibre optic network to cover between 50,000 and 500,000 people, the company announced today.
Why is it doing this?
In part, no doubt, because Google would benefit if Americans have much faster Internet access. Faster pipes would make it so that more people are capable of doing more Google-revenue-generating things on the Web, such as watching hi-def YouTube video, using Google Apps and Google Docs, and searching more.
In part, no doubt, because Google has the money and because it can. Broadpoint AmTech analyst Ben Schachter estimates Google’s initial build-out for 20,000 to 200,000 households could cost anywhere from $60 million to $1.6 billion. Probably closer to $500 million. “While these are not small numbers, they will hardly dent GOOG’s cash reserves of ~$25bil,” Schachter says in a note today.
But the biggest reason, we think, that Google is making this move is to finally put some pressure on cable and phone companies — America’s biggest ISPs — to upgrade their own networks faster.
In most places in America, consumers have one or two options for high-speed Internet: Cable modem from their cable provider or DSL/fibre from their phone company. Eventually, wireless could get there, but for now, pretty much no one is forcing the cable and phone companies to make their networks faster. But with Google in their rear-view mirrors, maybe they’ll pick up the pace.
Yes, Comcast, Verizon, AT&T, and other broadband companies are already pouring tens of billions of dollars in aggregate into upgrading their networks. But the download speeds they’re aiming for are not nearly as fast as what Google is proposing. So the threat of having to keep up with Google — if Google ever goes beyond the initial test phase — could put some fear into the incumbents. (Not that most people will have the immediate capability or need to use all that bandwidth.)
If it did inspire ISPs to speed their upgrades, without broadly having to enter the market, this would be the strongest outcome for Google: It would still get all the benefits of having more Americans on faster pipes. But it wouldn’t have to invest tens of billions of dollars into a nationwide rollout; it wouldn’t have to hire thousands of people to bury pipes in the ground; it wouldn’t have to get into a crappy, low-margin business; and it wouldn’t have to start staffing call centres when people can’t get their laptop to connect to Bing.
This is a similar trick that Google pulled a few years ago in the FCC’s wireless spectrum auction. Google used its beloved branding to convince the FCC and wireless companies that it was considering becoming a wireless carrier. It used this momentum to push a Google-friendly agenda — including getting the FCC to force one of the spectrum auction winners to run an “open” network — without ever becoming a carrier or spending billions on spectrum licenses or wireless towers.
Instead, Verizon Wireless wound up spending big bucks on the spectrum Google forced “open” and will use it for its forthcoming 4G network. Consumers will love dialling up Google Maps on that 4G network, which will benefit “happy loser” Google — without Google having to become a wireless carrier.
Same trick here, in an ideal situation: Google makes noise about getting into the telecom business, telcos freak out and spend more money, fast networks get built either way, and Google wins.