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Selling Google Fiber: It’s Not $70 Broadband That Will Win the Masses

Phillip Dampier August 15, 2012 Broadband Speed, Competition, Consumer News, Editorial & Site News, Google Fiber 12 Comments

Phillip Dampier

While tech fans in Kansas City rejoice over 1Gbps broadband for $70 a month, the average broadband user will think long and hard about the prospect of paying $840 a year for broadband at any speed.

That is why Google Fiber-delivered broadband in and of itself is not a cable/phone company-killing proposition.

We too easily forget our friends and neighbors that seem clueless satisfied with their 3Mbps DSL account from AT&T that they were sold with a phone line package for around $60 a month. Web pages slow to load and constantly-buffering multimedia? In their world, that means “the Internet is slow today,” not their provider.

Phone and cable companies have the internal studies to back up their claims that price matters… a lot. Those who treat the Internet as a useful, but not indispensable part of their life are going to be a tough sell at $70 a month. In fact, it is my prediction many future income-challenged and older customers will splurge on Google’s free-after-paying-for-installation 5Mbps service, satisfied that speed is currently “good enough” for the web browsing, e-mail, and occasional web video they watch on their home computer.

That is why Google was smart to offer the ultimate in “budget Internet.” Free after the $300 installation fee (thank goodness for the interest-free budget $25 payment plan) is far better than $20-25 a month for 1-3Mbps service many cable and phone companies offer their “light users.” It also brings Google’s fiber into the customer’s home, a perfect way to up-sell them later or offer other services down the road.

But the smartest move of all was Google’s very-familiar quasi-triple play package price point — $120 for broadband and television service (they really should bundle Google Voice into the package and cover the phone component for those who still want it). With the phone and cable company charging upwards of that amount already for after-promotion triple-play service, the sticker shock disappears. It’s no longer $70 for broadband, it’s $120 for everything. That is a much easier sell for the non-broadband-obsessed.

It also provides Google a critically-important broadband platform to roll out other services, including those that will appeal to customers who don’t have the first clue what a megabit or gigabit is all about. They don’t really care — they just want it to work and deliver the services they want to use hassle-free.

For Google Fiber to prove a profitable proposition, the search engine giant has to:

  • Find a way to manage the huge infrastructure and installation costs, especially bringing fiber lines to individual homes. Middle-mile networks with fiber cables that string down major roadways, but ultimately never connect to individual homes and businesses are far less expensive than providing retail service. Google’s $300 installation fee is steep, but manageable with payments and even better when customers commit to a multi-year contract to waive it;
  • Offer the services customers want. An incomplete cable television package can be a deal-breaker for many customers who demand certain sports or movie channels. Although younger customers may not care a bit about cable television service, they also may not be able to afford the $70 broadband-only price. Google will need to attract families, and most of them still subscribe to cable, satellite, or telco TV. They are also the most grounded customers, an attractive proposition for a company dealing with high infrastructure expenses that will take years to pay off. It’s harder to cover your costs selling to a customer still in school and likely to move after they graduate in a few years;
  • Sell customers on the hassle and inconvenience of throwing out the incumbent provider in favor of fiber, which will require considerable rewiring. It is one thing to express dissatisfaction with the local cable or phone company, it is another to take a day off from work to return old equipment and have unfamiliar installers in your home to provision fiber service. Some don’t want the hassle or lost time, others won’t switch until they get around to cleaning their messy house or apartment before they invite Google inside;
  • Deliver an excellent customer service experience. Google’s current level of support for its web-based services would never be tolerated by a paying broadband/cable customer. Google will have to learn as they go in Kansas City, but first impressions can mean a lot;
  • Expansion to get economy of scale. It is highly likely Google Fiber is a marketplace experiment for the company, and one it will study for a long time before it decides where to go next. Google’s “beta” projects are legendary and long, and if their fiber experiment does prove successful (or at least potentially so), the company will need to expand it rapidly to enjoy the kinds of vendor discounts a super-player can negotiate.

Verizon FiOS is the largest fiber to the home network in the United States. Their “take rate” of customers willing to sign up for the service has not exactly put incumbent cable companies into bankruptcy, even with $300-500 reward debit rebate cards and ultra-cheap introductory rates. Motivating subscribers to switch has never been as successful as theory might suggest. But Verizon has also shown other providers they can hard-negotiate significant discounts on hardware and equipment, and price cutting sessions have become ruthless.

At least Google has set its targets at reasonable levels. Only between 5-25% of eligible families have to commit to signing up for service in each “fiberhood” for Google to proceed with service rollout in that immediate area. That’s a realistic target with all of the factors necessary to deem the project a success.

Currently there are 12 comments on this Article:

  1. mmathieum says:

    “An incomplete cable television package can be a deal-breaker for many customers who demand certain sports or movie channels.”
    Customers want to watch certain sports or movie content, not the channels.
    If Google can deliver the same content another way, that’s even better.

    • I agree with this as well, but I would not hold my breath. Content companies are meddlesome and difficult trying to persuade to license anything but linear, traditional content delivery platforms. There is no way programmers are going to agree to a-la-carte packaging for Google, and on-demand content is still moving forward at a glacial pace. Sports networks won’t hear of it except in a pay per view (big $$$) context and movie studios are demanding a ransom for licensing recent titles for streaming.

      Google will have to play the game the content industry wants it played for now… which means packages and lineups that resemble Comcast/Verizon/DirecTV video lineups.

  2. “they really should bundle Google Voice into the package and cover the phone component for those who still want it”

    But they can’t, because that would make Google Voice look too much like “real” phone service, and subject them to a bunch of state and federal regulations (including the requirement to provide 911 service) that they can avoid by being essentially just a number forwarding service. There’s no technical reason they couldn’t do it, but there are probably several legal and regulatory reasons it wouldn’t make sense for them to do it at this time. And don’t forget that the minute they have to offer 911 and comply with all the regulations that “real” phone companies have to comply with, they’ll no longer be able to offer the service for free unless they are willing to take a big financial hit (which they probably could afford to do, but you have to wonder why they’d want to).

    Also, they’d likely be required to offer real customer service to their customers, instead of the current “post your issue on some obscure forum and hope a Google employee notices” – but that’s another issue.

  3. Agree with mmathieum. Burlington Tel experienced this with just one sport, hockey. That’s why Verizon is doing it’s deal with the cable cos and Apple is rumored to be in discussions with them. There is definitely a content/distribution monopoly that the regulators are blind to.

    But Phil, doesn’t Google provide an implicit triple play with Google Voice? The latter being free.

    • Actually, they poo-poohed the phone component as effectively “so yesterday.” I’m not surprised Google employees probably don’t care about landline service at all, being mostly younger and living their telecom experience with cell phones.

      But again, Google cannot afford to appeal only to younger, often cash-strapped customers. They have to appeal to the realities of a market where the sweet spot is still in the middle class, middle-aged families with children category, and many of those still have landlines.

      I agree Google Voice should be formally integrated into the offer, and this seems to be an easy proposition and value enhancer. Even cable companies treat their “digital phone” product increasingly like an afterthought, but its easy to provide and people still perceive value from it as a component in an aggressively priced triple play package.

      • Scott says:

        Actually I’d dispute the perceived value in the triple play with phone included. The problem with including the phone is all the taxes associated with having a wired phone for service often doubles the cost to the subscriber.

        The Telco offering DSL or the Cable Co may only charge $10-15/mo for the phone but your bill often gets knocked up to at least $25/mo for that extra feature. The only people that get any value out of it are the ones that don’t want or can’t afford a cell phone, which is much rarer these days than those that want or need a land line.

        If Cable Co’s let you cut that from your packet and save $20, I’m thinking they’d gain a lot more people willing to stay through another round or two of price increases.

        If the Telco’s would let you have DSL installed with just a dry loop and nothing but 911 service and save $20 they might actually have a competitive price against the cable companies.

        If it weren’t for all the extra fees tacked on to the phone service (including junk fees) myself and others I worked with would be much more amenable to having that as part of their double or triple play package in the cases where it wasn’t forced in the bundle anyway. As it stands it’s just one more way for the providers to pad their profits with someone most customers don’t want.

        • Scott, great points. Forgot about all those ridiculous local taxes and USF fees. There is so much regulatory bloat, so that’s why Google let’s the user utilize any OTT. Service fees in general are 20-150x overpriced on a bandwidth adjusted basis since bandwidth pricing disconnected from moore’s and metcalfe’s laws about 10 years ago. Thanks to those same regulators!

          • Scott says:

            Yeah, the taxes and fee’s are ridiculous, I double checked and you’re looking at up to 50% of your monthly phone line in just taxes/regulatory state/federal fees.

            So a line for $20-25 would mean up to an additional $20-25 in fees.

            Vonage has a great calculator on their website that shows per line the fees levied against their VOIP service.

            http://www.vonage.com/

            Then click on the Start-up Cost Calculator and pick a plan.

            Only way around those fee’s is to go with a service that’s not treated as a normal telephone provider with a ‘jack’, such as soft-phone only or SIP that you configure to yourself.

            Really, the only time I’ve worked with anyone that had a serious need for a land line has been dedicated fax that may not work with their VOIP, home security system that won’t work over a VOIP line, and the reliability of a traditional copper line vs IP based phone service.

  4. Phil, just saw this article about Comcast $10/month broadband. Just goes to show when there is a (political) will there is a way.

    http://www.zdnet.com/comcast-nearly-400k-americans-participating-in-cheaper-internet-program-7000002691/

  5. Ian L says:

    As far as phone service is concerned, there are a hundred different ways to get it, via cellular or via VoIP, so I can see why Google didn’t bother with it. Cable companies are now pushing Video + Internet double plays because landlines are increasingly a convenience rather than a necessity. If you want a home phone, you can get the service for $20 per month via Verizon, Sprint or AT&T now. Plus, Google has an incentive to not offer landline phone service: no landline phone that I’ve run across so far runs Android.

    • Ian L says:

      Also, cable companies have historically not had a problem selling ‘net + video double play, prior to when they could get VoCable working.

  6. Wayne says:

    I see no reason why Google can’t offer a service just like VOIPO as a simple add-on. Free 5MB internet plus $120 annual ($10 a month)landline with E911 and all the fancy phone features including long distance free google to google or 1cent per minute non-google long distance.
    Break the hold AT&T has with all their fees and taxes and service charges and such.
    Of course, people would have to buy a UPS to keep their system powered during power outages. Buit a 1000VA system only costs about $100.

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