Property values in the historic neighborhood of Hanover Heights (Kansas) are ticking up as tech businesses relocate to follow Google’s roll-out of gigabit fiber service, coming in a matter of weeks.

Only one problem: Google is not officially selling fiber service to businesses just yet. Answer? Buy residential property in the area and move workers who could deliver increased productivity with faster Internet speeds.

That was the answer for Local Ruckus LLC, which is opening its new headquarters in a 2,500-square foot home in the first neighborhood scheduled to receive Google Fiber service.

“It just makes life easier,” CEO Adam Arredondo told the Kansas City Star.

The company says it needs the faster speeds to facilitate transferring files back and forth more quickly.

RareWire, a local developer of apps for mobile devices has decided it can best leverage 1,000Mbps broadband speeds launching a new startup – App Creation Studio, which will assist developers with testing and marketing apps.

Tech start-ups are exactly what Google hoped to see from its experimental fiber network, which is still barely operational. City officials see fiber broadband infrastructure and Business Hosted Voice Solutions as the foundation for energizing the local digital economy.

KCMO mayor Sly James last month unveiled Launch KC — an effort to attract technology companies to Kansas City, particularly start-ups.

James announced five companies and Union Station were prepared to offer free or “very affordable” office space in the city’s Crossroads district, the West Bottoms, and downtown. Office space is even available at the Kansas City International Airport.

Other initiatives would stimulate businesses with attractive sale-and-leaseback offers and exemptions for sales and property taxes. Officials specifically targeted city neighborhoods they felt would be attractive to young entrepreneurs in their 20s and 30s looking for office space. Nearby renovated rental property in neighborhoods officials call “funky without being phony” and “organic” should prove attractive to those relocating to Kansas City, according to project representatives.

City officials are also working on developing free Wi-Fi service in the neighborhood and attracting a data center that would offer attractive cloud storage and other web hosting services.

Most of the incentives represent a fundamental shift away from traditional economic development initiatives, mostly targeted to traditional brick and mortar projects for large manufacturing, retail, or service companies that employ hundreds or thousands of workers. Instead, Kansas City officials are targeting small digital economy businesses that often employ fewer than 20 workers. Launch KC believes the sheer number of potential start-ups, and the modest cost of the program, could pay dividends.

With Google Fiber and the city’s cooperation, the Mayors’ Bistate Innovations Team Task Force believes it has a winning combination.

“We’re in a great position right now,” Burke said, “and we need to take advantage of it.”

Phillip “You Guys Need a Timeout” Dampier

AT&T and Time Warner Cable are complaining they have gotten a raw deal from Kansas City, Mo. and Kansas City, Ks., in comparison to the incentives Google was granted to wire both cities with gigabit fiber broadband.

“It’s time to modernize our industry’s rules and regulations…so all consumers benefit from fair and equal competition,” read a statement from AT&T.

“There are certain portions of the agreement between Google and Kansas City, Kan., that put them at a competitive advantage compared with not just us but also the other competitors in the field,” said Alex Dudley, a Time Warner Cable spokesman. “We’re happy to compete with Google, but we’d just like an even playing field.”

The Wall Street Journal seemed to suggest Google was getting the keys to both cities, with grants of free office space and free power for Google’s equipment, according to the agreement on file with the cities. The company also gets the use of all the cities’ “assets and infrastructure”—including fiber, buildings, land and computer tools, for no charge. Both cities are even providing Google a team of government employees “dedicated to the project,” says the Journal.

The Google Fiber project was so desired that the local governments rolled out the red carpet. In Kansas City, Mo., for instance, the city is allowing Google to construct “fiberhuts,” small buildings that house equipment on city land at no cost, according to a person familiar with the matter.

The cities are discounting other services, as well. For the right to attach its cables to city utility poles, Google is paying Kansas City, Kan., only $10 per pole per year—compared with the $18.95 Time Warner Cable pays. Both cities have also waived permit and inspection fees for Google.

The cities are even helping Google market its fiber build-out. And both are implementing city-managed marketing and education programs about the gigabit network that will, among other things, include direct mailings and community meetings.

Several cable executives complain that the cities also gave Google the unusual right to start its fiber project only in neighborhoods guaranteeing high demand for the service through pre-registrations. Most cable and phone companies were required by franchise agreements with regional governments to build out most of the markets they entered, regardless of demand.

But the Journal missed two key points:

1. Time Warner Cable has been granted the same concessions given to Google on the Missouri side, and AT&T presumably will also get them when it completes negotiations with city officials on the matter.
2. Both cable and phone companies have the benefit of incumbency, and the article ignores concessions each had secured when their operations first got started.

The Bell System enjoyed a monopoly on phone service for decades, with concessions on rights-of-way, telephone poles and placement. AT&T was a major beneficiary, and although the AT&T of today is not the same corporation that older Americans once knew, the company continues a century-long tradition of winning the benefit of the doubt in both the state and federal legislature. AT&T has won statewide video franchise agreements that give the company the power to determine where it will roll out its more advanced U-verse platform, and enjoys carefully crafted federal tax policies that helped them not only avoid paying any federal tax in 2011 — the company actually secured a $420 million “refund” subsidized by taxpayers.

Cable operators also won major concessions from local governments under pressure from citizens eager to buy cable television. At the time, cable companies were granted exclusive franchises — a cable monopoly — to operate, an important distinction for investors concerned about the value of their early investments. Local zoning and pole attachment matters were either negotiated or dealt with legislatively to allow cable companies the right to hang their wires on existing utility poles. Franchise agreements permitted the gradual roll-out of cable service in each franchise area, often allowing two, three, or more years to introduce service. It was not uncommon for neighborhoods on one side of town to have cable two years before the other side could sign up. That sounds awfully familiar to AT&T U-verse today.

Google’s proposal to build a revolutionary broadband network delivering 1Gbps deserved and got the same type of treatment then-revolutionary phone and cable service won back in the day.

Time Warner Cable also won much the same treatment Google is now getting, and the cable operator has gotten $27,000 in fees refunded and will avoid another $100,000 in permit fees going forward. Time Warner Cable and Google will both receive free traffic control services during network construction — not that Time Warner Cable plans much of a change for customers in either Missouri or Kansas.

AT&T will likely also receive the same treatment, although it would be hypocritical of them to complain that Google gets to pick and choose where it provides service. Large swaths of Kansas City and suburbs are still waiting for U-verse to arrive, and many areas will never get the service. Cable operators had to wire a little further, but also benefited from years of monopoly status and network construction expenses paid off years ago when there literally was no competition.

Those paragons of virtue at Goldman Sachs are appalled Google has such a good relationship with Kansas City officials more than happy to have the gigabit speeds neither AT&T or Time Warner Cable would even consider providing.

Google’s rights “appear to be significantly more favorable than those cable, Verizon or any other fiber overbuilders achieved when striking deals with local governments in the past,” Goldman Sachs analyst Jason Armstrong told the Journal. “We’re surprised Time Warner Cable hasn’t been more vocal in its opposition.”

But then the cable company has secured most of the same benefits Google has, so why complain at all?

In fact, city officials had to browbeat Time Warner to modernize its network in ways it would have not done otherwise without the new agreement.

Both AT&T and Time Warner have every right to be concerned. Their substandard networks and high prices (along with a lousy history of customer service, according to national surveys) put them at a competitive disadvantage if Google does not make any major mistakes. Neither cable or phone company has made any noise about upgrading service to compete, and should customers begin to leave in droves, then both companies may actually have something to cry about.

The Wall Street Journal’s report on the concessions granted to Google wanders off into the Net Neutrality debate for some reason, and misses several important facts reviewed above.  (3 minutes)

Did you miss out on Google Fiber’s forthcoming gigabit broadband network in Kansas City, Kansas and Missouri? Kansans may not be out of luck, as provider SureWest aggressively continues work to expand its own fiber to the home network in several Kansas City suburbs and nearby communities.

SureWest, which believes strongly in fiber service, is busy laying fiber in conduits in Fairway, Mission, Roeland Park — all in Kansas. It also offers service in Lenexa, Overland Park, Shawnee and parts of Kansas City, Mo.

With all of this fiber, some Kansans may soon be able to choose between two competing fiber to the home providers.

SureWest General Manager of Kansas City operations Matt Zuschlag says SureWest’s fiber broadband service, which tops out at 50/50Mbps, will work just as well as Google’s gigabit (1,000Mbps) service because most web sites don’t need super fast speeds to load equally as fast. Even some bandwidth-intensive applications will not be able to take full advantage of Google’s fiber speeds because the networks currently supporting them were not designed to deliver sustained gigabit speed to end users.

SureWest works good enough for communities like Prairie Village, which is asking the company to wire its community for fiber service, regardless of where Google expands next.

SureWest competes with traditional cable and phone companies — Time Warner Cable and AT&T in the case of northern Kansas, and sells traditional triple play packages of phone, Internet, and television service.

But SureWest says its fiber network is always laid underground, which the company says offers improved reliability. Google Fiber is being installed largely on overhead lines alongside other utility services. SureWest says going underground allows it to skip the delays associated with obtaining pole use permits.

Despite glowing media reports about Time Warner Cable’s announcement it is investing $25 million to expand its fiber optic network in parts of Brooklyn and Manhattan, in fact the fiber expansion is part of a previously-reached franchise agreement with New York City officials and will only be available to large business customers that can afford the asking price.

Time Warner Cable’s press release, which generated favorable media coverage in The Wall Street Journal and Bloomberg News, focused considerable attention on fiber upgrades for the Brooklyn Navy Yard, since reborn as a modern tech-friendly business park.

TWCBC also announced that the Brooklyn Navy Yard Development Corporation, a 501(c)(3) organization, will receive a state-of-the-art Time Warner Cable Learning Lab in its Employment Center, located inside the massive complex and accessible to the public.

“We are very pleased to work with the City of New York to make significant investments to ensure that this city has the technology infrastructure to successfully compete in a worldwide marketplace,” said Ken Fitzpatrick, President of Time Warner Cable Business Class, East Region. “Our fiber optic network provides dedicated Internet access at incredible speeds and high-bandwidth capabilities to serve the communications needs of any business.”

Time Warner Cable was required to make its investment in the Brooklyn Navy Yard as part of its franchise agreement with NYC officials.

Time Warner Cable did not, however, provide this investment out of the goodness of their heart. They were required to under the terms of the current franchise agreement the company signed with city officials:

[Time Warner Cable] will install, at its own expense, the fiber optic and coaxial cables and related facilities and equipment needed to provide its service to the buildings and occupants throughout the Brooklyn Navy Yard facility.

Time Warner Cable is also extending its network to more commercial establishments throughout the city, in keeping with its previously-announced interest in expanding services to business customers. Nothing new to see here either.

That did not stop Bloomberg News from comparing Time Warner’s network expansion with Google’s gigabit network in Kansas City:

Time Warner Cable Inc. will expand fiber-optic lines to businesses in New York, a move that boosts Internet speeds as much as 20 times and provides an East Coast counterpoint to Google’s ultrafast network in Kansas City.

The company faces a threat from Google more than 1,000 miles away in Kansas City, where the Internet-search giant is building a fiber-optic network as a test project. Time Warner Cable is the main broadband provider for the area, which spans parts of Missouri and Kansas. While Google’s network will be available to both companies and households, Time Warner Cable’s New York fiber network is focused on businesses.

Google’s network initially will only be sold to residential customers, which are the primary targets for the service. Time Warner Cable’s fiber backbone network primarily works in tandem with its coaxial cable network and does not provide a fiber to the premises connection except for the company’s largest corporate customers.

Time Warner Cable Business Class sells different speeds and services to commercial clients. Most choose speeds considerably lower than 1,000Mbps because of the cost.

What was missing from the coverage is the fact ordinary residential Time Warner Cable customers in New York City will not benefit from these fiber upgrades — they are targeted only to commercial clients. Residential customers will continue to receive the same hybrid fiber-coax service they always have from the cable company.

If New York customers want fiber service, they will have to buy it from Verizon, assuming FiOS has made its way to your borough and neighborhood.

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.