The nation's broadband battle escalated on Tuesday after
Google confirmed plans to expand its superfast Internet and TV
service to Austin, Texas. There, it will take on market leader
Time Warner Cable and AT&T, which said it is prepared to
match the gigabit speeds offered by Google if city officials
grant it similar concessions.
Austin will be the second market whereGoogle (
) builds a fiber-optic network, following Kansas City. Austin is
one of more than 1,100 municipal governments, mostly small, that
have sought the Google Fiber service, which offers broadband
speeds of up to 1 gigabit per second.
The Texas city, a high-technology hub, launched a public
relations campaign called "Big Gig Austin" to snare Google in
2010. Analysts have expected Google to roll out its service in
more markets, but the prevailing view is that the Internet giant,
despite its financial muscle, will not expand across the U.S.
In markets like Kansas City and Austin, though, Google will
pressure incumbent service providers, analysts say.Time Warner
) operates in both Kansas City and Austin. Phone companyAT&T
) sells broadband and Internet services in Austin.
While Time Warner Cable sells broadband speeds of 50 megabits
per second for $79 monthly, Google charges $70 for its gigabit
service in Kansas City. Google's service is 20 times faster than
Time Warner Cable's offering.
Google plans to start connecting homes in Austin by mid-2014.
Austin residents will be offered a choice of products similar to
those in Kansas City. Pricing will be "roughly similar" to Kansas
City, Google said.
"We believe the Internet's next chapter will be built on
gigabit speeds," said Milo Medin, Google Fiber vice president, in
a blog post.
AT&T on Tuesday afternoon issued a statement saying it'll
upgrade its Austin network to 1 gigabit speeds if city officials
grant it "the same terms and conditions as Google on issues such
as geographic scope of offerings, rights of way, permitting,
state licenses and any investment incentives."
"Policies which eliminate unnecessary regulation, lower costs
and speed infrastructure deployment can be a meaningful catalyst
to additional investment in advanced networks which drives
employment and economic growth," said Randall Stephenson,
AT&T chairman and CEO.
At a Morgan Stanley conference in February, Time Warner
Cable's CFO Irene Esteves said the cable firm isn't seeing much
demand from customers for 1 Gbps speeds. "We just don't see the
need of delivering that to consumers," she said.
Google, though, is being proactive. Think Big Partners, which
works with startup companies, is sponsoring the "Gigabit
Challenge," a contest for companies to develop applications that
take advantage of the 1 Gbps speeds.
"Google Fiber will be disruptive in the markets it targets
because it allows the development of a new generation of
applications to emerge," said Oppenheimer analyst Tim Horan.
Google's entry into new markets, analysts say, will hurt the
ability of cable TV companies to raise prices or introduce
consumption-based billing. Broadband usage caps, consumer groups
have charged, aim at derailing competition from online video
providers such asNetflix (
In mid-2012, Time Warner Cable reintroduced data usage caps in
Austin, a policy it first tried in 2009. If customers exceeded a
5 GB usage allowance, the cable firm charged fees of $1 per
gigabyte, up to $25.
Google began installing its service in Kansas City in
November. It's building out the service initially in
neighborhoods where the most subscribers registered and paid a
In Kansas City, Google has received government concessions to
speed up its fiber build-out, including staff assigned to issue
permits, space for central office equipment, and right-of-use on
utility-owned poles. Goldman Sachs, in a report, says Google may
be encouraged to expand its fiber-optic service to more markets
if local governments provide incentives.
Even so, Google would be hard-pressed to become more than a
regional player. Bernstein Research analyst Carlos Kirjner
estimates Google would need to spend $10 billion to $15 billion
over five years to reach 20 million homes, about 15% of the U.S.
"We remain skeptical that Google will find a scalable and
economically feasible model to extend its build-out to a large
portion of the U.S.," he wrote.
In Kansas City, Google charges $120 for both Internet and
pay-TV services. Google has less flexibility to offer TV
discounts, analysts say, because it must pay content providers
programming fees, just like cable, satellite and phone
Time Warner Cable has about 45% of video customers in Austin,
with AT&T at 13%, satellite broadcaster DirecTV at 17% and
Dish Network at 16%, said Vijay Jayant, analyst at ISI Group.