Markets

Reports of Google Fiber's Death Are Greatly Exaggerated

Google and its parent company Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) have been treating the Google Fiber project like a pariah recently. The gigabit fiber service didn't expand at all for a couple of years, and new subscriptions don't include a fiber-based TV service anymore. But there's a change in the weather right now, and Google is taking its fiber-optic internet service seriously in 2020. Just this week, Google launched a new plan that doubles the download speeds on Google Fiber and comes bundled with a next-generation WiFi 6 system.

Fresh upgrades and expansions

The 2-gigabit Google Fiber plan will cost subscribers $100 per month, a $30 premium over the existing gigabit service. The service includes a WiFi 6 router and a mesh extender, which should cover up to 3,000 square feet of floor space in high-speed WiFi signals.

This plan will soon launch in all 19 of Google Fiber's current markets, including the recent additions of Millcreek, Utah, and West Des Moines, Iowa. The Millcreek project involves new construction and fiber-optic line installations. It's expected to serve its first customers in early 2021. In West Des Moines, Google is taking over the management and subscriber list from the municipal fiber network.

We're not talking about huge markets here. West Des Moines has 66,600 residents, while Millcreek has 61,300. But growth is growth, and these modest additions may be signs of a more ambitious expansion plan. Doubling the download speeds and including a modern WiFi solution for a modest additional fee also feel like forward-looking moves.

These are not the actions of a company that plans to shut down its fiber-based internet service. They point to a brighter future and a growing user base.

A handful of fiber-optic cables lit up against a black backdrop.

Image source: Getty Images.

The business case

Google Fiber remains a promising long-term business idea for Alphabet, but it isn't a profit center today. This operation is bundled in the "other bets" division when Alphabet reports quarterly results, and the venture's results are consistently printed in red ink. Other bets saw a $1.1 billion operating loss on $148 million in second-quarter revenues, primarily based on Google Fiber and the health research business known as Verily.

Keep in mind that Alphabet's "other bets" are long-term projects. Some of them will grow into profitable stand-alone businesses, while others will fail and die along the way. Critics have seen Google Fiber as a money-losing nonstarter, but I wouldn't be surprised to see Alphabet throwing its considerable weight behind promoting and expanding this business over the next few years.

I own Alphabet shares exactly because of the long-run value I expect from the "other bets," even if the results look small and painful in the short term. And Google Fiber should start pulling its weight fairly soon.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Anders Bylund owns shares of Alphabet (A shares). The Motley Fool owns shares of and recommends Alphabet (A shares) and Alphabet (C shares). The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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