The advent of Google Fiber was a breath of fresh air for consumers who were long dissatisfied with cable monopolies and bandwidth throttling. Now, it seems, the competition posed by Google’s gigabit internet has finally spurred the incumbent cable providers into taking action.
On Friday, August 1, both Comcast and Time Warner Cable (TWC) announced that they would be increasing internet speeds for customers in Kansas City, among other cities, at no additional cost to the consumer. While Comcast’s speed upgrades will take place over the next few days, TWC won’t upgrade internet speeds until next year. Customers who pay for 25 megabits per second (mbps) service will be upgraded to 50mpbs, customer who pay for 50mpbs will get 105mpbs, and customer who were paying for 105 will now see 150mpbs.
Kansas City, Kansas was selected from a pool of applicants to be the first city for Google Fiber in 2011; and it has become the flagship territory for the network. While the service has expanded to other cities, and Google has announced plans to spread it further, Kansas City is the most familiar with the service, so it makes sense that the incumbent providers would begin their counter-attack there. Still, the speeds being offered by Comcast and TWS pale in comparison to the 1 gigabit per second offered by Google.
While the move may seem generous, the cost to increase bandwidth for existing customers is almost negligible for these cable companies. Jim Hayes, president of The Fiber Optic Association, said that these companies aren’t really giving much away, especially with all of the discussions around throttling; most recently demonstrated by Verizon’s spat with the FCC.
According to Jeff Hecht, author of Understanding Fiber Optics, the cable companies have to compete to stay relevant.
“The cable companies really don’t have any choice but to compete because they’re going to start losing the cutting edge subscribers over the top if they don’t,” Hecht said.
As I wrote earlier, inspiring competition among incumbents by inciting demand for better service is one of the potential outcomes of the Google Fiber saga. As Google Fiber builds up its customer base, that threat is becoming a reality for the two biggest internet providers in the US.
Hecht said that whether or not the cable companies will have to actually deploy their own fiber will depend on what their customers need. If the customers are mostly using cable for video, they won’t need much digital bandwidth. Hayes, on the other hand, believes that incumbents adopting fiber is inevitable.
“The incumbents know that, eventually, they’re going to have to do fiber,” Hayes said. “It’s just going to happen.”
The need for bandwidth is ever-increasing, especially with the growth in online video streaming through services such as Hulu and Netflix. That puts cable ISPs on the chopping block in more ways than one. Not only do they need to keep up with increasing demand for digital bandwidth, they also have to figure how to deal with the drop in cable TV subscribers at the same time.
Faster internet speeds and more internet traffic are good for Google regardless of the outcome. And, while the task of trying to become a national fiber ISP in the US is daunting, it’s another possible endgame for Google.
Hayes initially thought that Google’s plan was simply to tweak other companies and try to encourage competition. But, after Google announced the 34 additional cities for Fiber expansion, he began to take a look at the numbers and began to see Fiber as one of the few opportunities for a multi-billion dollar company like Google to grow.
“If they got like a 30% penetration in those 34 cities, they would be generating more than $6 billion a year in revenue for the service, irrespective of what they get in additional advertising for more market penetration,” Hayes said.
His guess is that Fiber could end up as high as an 80% gross margin for Google, and it is no longer tweaking the market, but establishing itself as a major internet provider.
Whatever the plan, Google Fiber is shaking up the ISP industry and, with cable company satisfaction at an all time low, it’s obvious that something has to give.
What do you think?
We want to know. Do you think Google is trying to push incumbents to provide better service? Or, is Google making a real play at being an ISP?