Google Fiber says TV service is essential to compete in the broadband game

ORLANDO, Fla.--Google Fiber (NASDAQ: GOOG) may have a tight focus on providing a symmetrical 1 Gbps broadband experience for the cities it has targeted for fiber-to-the-premises (FTTP), but the service provider knows that having a compelling TV offering is just as important.

Speaking during a keynote at this week's Comptel Plus trade show, Milo Medin, vice president for access services at Google Fiber, said that while there's no need to have a voice service, customers that sign up for service will want to know TV is part of the service lineup.

"What we have found is that while it's not necessary to offer voice service because of wireless substation, if you don't offer a good TV service your ability to compete with incumbents that bundle Internet and TV together is significantly impaired," Medin said.

However, developing a compelling offer is a tall order for emerging entrants like Google Fiber, which are at a disadvantage in negotiating carriage deals with content providers. 

"It can be very difficult to secure programming rights to all the major networks that consumers desire, but in some cases coops can help with national channels," Medin said. "Regional sports networks that are owned by incumbent cable operators often are denied to competitors and for some content that could prevent you from delivering a viable offering."

One example where content rights is an issue is in Los Angeles, where Time Warner Cable (NYSE: TWC) and the Los Angeles Dodgers jointly own SportsNet LA. The SportsNet LA network, which debuted on Feb. 25, 2014, is part of a 25-year deal the team reached with Time Warner Cable in January 2013.

"In Los Angeles, the local cable operator controls the distribution of LA Dodger games and has a 25-year exclusive agreement," Medin said. "This is certainly going to dissuade us and others to build fiber there because it's hard to have a competitive TV service without access to the local MLB games."

At the same time, Google Fiber and other competitors have to pay a far greater price than incumbent cable operators for content. New entrants often have to pay much higher fees than incumbent cable operators like Comcast (NASDAQ: CMCSA) or Time Warner Cable.

"The biggest problem of all is the cost differential all us new competitors face compared to large incumbents," Medin said. "We often end up paying more than double the price for exactly the same programming incumbents pay, which is a hard economical differential to overcome because consumers aren't willing to pay significantly more for TV because you offer much, much faster Internet."

Google Fiber is not alone.

CenturyLink (NYSE: CTL) asked the U.S. House Energy and Commerce Committee in January to reform the 1992 Cable Act so new entrants in the video services race can more effectively negotiate prices for content.

Although CenturyLink was one of the last of the largest ILECs to enter the TV game, trailing its closest peers AT&T (NYSE: T) and Verizon (NYSE: VZ), the service provider has continued to make progress in rolling out its Prism IPTV service.

During the fourth quarter, the service provider added about 12,900 new Prism TV customers, ending the quarter with a total of 242,000 customers while increasing the penetration rate to about 2.4 million homes passed to 10.2 percent.

But getting access to content at competitive rates is only one part of the problem. The other issue is the lack of choice in set-top box devices users can purchase to get their video content.

"The set-top box market in the U.S. is fundamentally closed and consumers are not allowed to buy devices in the competitive market," Medin said. "Consumers don't have the option of buying a set-top box that works with their TV provider from companies like Apple or Sony."

Google Fiber itself did not have the option to offer various devices to access video content either and was forced to develop its own set-top box. However, building hardware for service providers is a rather unpractical endeavor.

At the same time, Congress has told the FCC to form a committee to develop open standard interfaces for video providers.

"Congress has directed the FCC to specify a new standard to create open interfaces for video providers," Medin said. "If it's successful, it may open up the closed ecosystem, make great ubiquitous consumer friendly devices a reality and simplify the delivery of TV service for competitors."

Related articles:
Google Fiber's Medin: Net neutrality doesn't promote broadband competition
CenturyLink wants Congress to update the 1992 Cable Act
Google Fiber says it's still months away from turning up service in Austin
Google Fiber's presence pressures AT&T to adjust 1 Gig pricing plans

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