Few stories in tech have been more breathlessly hyped on the way up and gleefully eulogized on the way down than Google Fiber. Since Google announced last fall that it was pausing Google Fiber’s expansion into new markets, Access, the Google subsidiary that houses Google Fiber, has laid off more than 20% of its workforce, faced continued delays in Fiber’s existing markets and gone through three chief executives (or four, depending on how you’re counting). By any traditional yardstick of success, Google Fiber has been a failure. But it may have achieved exactly what Google set out to do: disrupt the U.S. home broadband market.
Like an obscure punk band, Google Fiber has been far more influential than its finances would suggest. In 2010, when Google announced it was soliciting proposals from cities for Google Fiber, the broadband and video options available to consumers in the U.S. were not inspiring. Barely a quarter of Americans had access to 100 Mbps (PDF download). If they did, prices were close to $200/month just for internet. The only plausible way to get access to a large selection of must-see programming was through high-priced traditional pay TV packages usually bundled with sub-25 Mbps broadband. Options for most homes were limited to one cable provider and a telco offering low-speed DSL.
Many of Google Fiber’s competitors in the cable and telco world initially talked down Fiber’s disruptive offering of 1 Gbps for $70 a month as of limited use to consumers, but the pitch touched a nerve—and motivated incumbents to spend. Nearly 80% of Americans now have access to 100 Mbps, and 9% have access to 1 Gbps. According to a study by the Fiber Broadband Association, prices for packages between 100 Mbps and 1 Gbps have declined 57% since early 2011. Competitors became copycats: soon after Google Fiber entered its markets, AT&T launched Gigapower, a fiber-to-the-home product with gigabit speeds for $70 a month, and low-priced gigabit has become the de facto standard for new market entrants. As a consequence, average U.S. broadband speeds have moved up the international leaderboards.
When Fiber launched in 2011, it offered only one product: broadband. In 2012, as a concession to the market dynamics at the time, Google added TV and has recently added phone, with no discounts for bundling. But Google Fiber has always led the sale with broadband. Now all triple-play providers lead with broadband, and smaller operators like Cable One and Mediacom have even begun downplaying video in their marketing. A lot of other factors have led to the de-emphasis on video, but Google provided the template. Recently they’ve returned to their roots: Google Fiber will not be offering TV in its next two markets, Louisville and San Antonio.
These pro-consumer developments have been the most visible changes influenced by Google Fiber and were only embraced begrudgingly by incumbent providers. But it’s behind the scenes, in terms of network planning, that Google Fiber’s disruptions have been most welcomed by incumbents.
From the start, Google Fiber turned the logic of the municipal franchise agreement on its head. Instead of offering concessions to municipalities for the privilege of deploying in their rights of way, Google got municipalities to compete with each other for the privilege of hosting Google Fiber. More than 1,000 communities competed in the sweepstakes to be the first Fiber city, and cities continued for years to compete to host Google Fiber—so much so that Google published a checklist dictating its terms. This sea change in fiber providers’ leverage can be seen in the gushing response that Verizon received when it decided last year to expand Fios in Boston. In the old days, cable providers had to pay franchise fees, fund local access television and provide near-comprehensive coverage. Franchise fees haven’t disappeared, but now, communities offer promises of fast-track permitting, colocation in government-owned buildings, and cheap access to municipally owned poles, ducts and fiber.
Google Fiber also showed providers how to remove some of the uncertainty involved in network planning. Before building in a new market, Google split up the city into “Fiberhoods” and directly solicited residents to gauge their interest in purchasing service. This served several purposes: one, it was very effective targeted marketing to build up interest in their service in advance; two, it helped Google better target its buildout to neighborhoods that reached certain pre-sign-up thresholds, which in theory shortened the ramp time to reach cash flow-positive market share; three, it inoculated Google from charges of redlining, the illegal practice of not offering services based on the racial composition of those areas. Using preconstruction sign-ups to target buildouts and create excitement is now standard operating procedure for operators entering new areas.
Google’s shrinking of its Fiber ambitions has been characterized by most analysts as a retreat from the U.S. broadband market. But Google has always spun the pullback as retrenchment in the face of a changing market, not a retreat. There is something to that.
While Alphabet drip-feeds capital to fund Fiber’s fiber-to-the-home expansion, the company has continued to invest and experiment with fixed wireless technology. Google bought Webpass, a fixed wireless provider to urban apartment buildings, late last year, and has integrated the business into Google Fiber—and recently expanded to two new cities, Seattle and Denver. More ambitiously, Google has been at the forefront of the CBRS Alliance to push an innovative spectrum-sharing licensing regime with 3.5 GHz (CBRS) spectrum. Executed right, the spectrum-sharing regime could provide low-cost spectrum for fixed wireless for Google and other new market entrants, dramatically reducing the cost of last mile access, the biggest hurdle to broadband investment. Fixed wireless has long been touted as an emerging competitor to fixed-line broadband so skepticism is merited, but Verizon sees similar potential, promising 5G fixed wireless in urban areas as soon as next year. And Google already has the migration of video to the internet covered from a bunch of angles, including ad-supported video-on-demand (YouTube), subscription video on-demand (YouTube Red) and virtual multichannel video programming distribution via YouTube TV.
No, Google’s disruption of the home broadband market did not materially change the competitive environment for home broadband, other than in a handful of cities. Google’s predictably massive capital costs and slower-than-expected market share gains demonstrated again why no one is willing to undertake large-scale fiber overbuilds of cable and telco incumbents. But Google motivated providers to upgrade their networks and drop their broadband prices and provided a tailwind for consumers’ migration from traditional pay TV to cheaper over-the-top video. Given Google’s innovations in network planning, fixed wireless and over-the-top video, one can see how Google is laying the groundwork for a wireless-led disruption of the home broadband market, where the capital costs of last-mile wiring and lack of a traditional pay-TV product are no longer deterrents to market entry. Much like Google Fiber’s first disruption of the U.S. home broadband market, the next disruption will not require Google to build everywhere to have widespread influence.
Micah Sachs is a principal at CMA Strategy, a boutique advisory firm that advises providers and investors in the telecommunications, media and information technology markets. He can be reached at [email protected].