The power dynamic will not shift overnight, but the newly announced launch of Google Fiber in the tech-savvy gulch that is Austin, Texas, has legacy cable operators shaking in their boots. And with good reason.
On paper, literally everything about Google Fiber makes standard digital-cable service look like something that was cobbled together by members of a lesser phylum. Boasting gigabit download/upload speeds (up to 1,000 Megabits per second), Google’s connectivity is roughly 70 times faster than Time Warner Cable’s standard 15 Mbps plan.
Google Fiber TV is just as head spinning, allowing subscribers to record up to eight programs simultaneously while offering two terabytes of storage, on par with the capacity of DISH Network’s Hopper.
When Google Fiber late last year began transforming Kansas City into the nation’s sole “no-buffering zone,” incumbent Time Warner Cable established a hotline for locals to report tips and rumors about the construction effort. To sweeten the pot, TWC rewarded select members of its spy network with $50 gift certificates.
TWC is by far the dominant operator in the Austin DMA, which boasts 705,280 TV households. The MSO serves approximately 50 percent of Austin’s pay-TV subs, followed by DirecTV (18 percent), DISH Net (17 percent) and relative newbie AT&T U-verse (15 percent).
For all of TWC’s justifiable paranoia, it’s worth noting that no cable overbuilder has ever proved to be a financial success. “While residents and area businesses will undoubtedly be delighted, investors will need to be mindful of the costs associated with the company’s strategies,” said Pivotal Research Group analyst Brian Wieser. “Google is ‘protecting the moat’ around its paid search business by spending hundreds of millions—and eventually billions?—on Google Fiber. While I don’t doubt that the consumer experience will be a highly desirable one, [this appears to be a] margin-eroding strategy.”
That may prove to be the case, but the Masters of the Universe have sat up and taken notice. At around the same time the K.C. rollout got underway in earnest, Boston-based institutional investor FMR LLC scooped up an eye-popping $11.6 billion in Google Class A shares.
“As Google works out the kinks, it appears set for faster growth” in Kansas City, said BTIG analyst Rich Greenfield, adding that the fact that Austin owns its own electric utility will go a long way toward eliminating third-party interference.
Bottom line is, with $48.1 billion in cash on its balance sheet, Google perhaps can afford to wait as much as 10 years for a return on its initial investment.
As for future deployments, only time will tell. Eighteen months elapsed between the time K.C. was named the first Google Fiber city and installations began.