Thursday, February 23, 2012

Is Google Fiber A TV Solution?

As I read the first line of the Gigaom article, I wondered if this was the smartest strategic move for Google. Here it is, "Google has filed for a video franchise license, which if approved could allow it to take on cable providers in markets in which it’s hoping to deliver fiber-enabled Gigabit broadband services." And I wonder if the capital expenditure makes sense.

The cable business, despite a drop in basic subscription, remains healthy. Cable operators, who invested in cable to the home, have been able to find multiple platforms to leverage this expense. The same wire used to provide cable now provides broadband and telephone service. Some are even looking to use this pipe for home security systems. Verizon FIOS has been able to use its pipeline too. First for telephone and then for DSL. But the cost to convert to fiber has added high costs and the conversion of new subs slow. To that end, they have limited their build out to focus on increased penetration of current markets.

So for Google, a fiber build out means starting from scratch with high costs and no subscribers. Add to that the high cost to acquire cable programming channels. With no subscribers to leverage, the license fees for programming will be higher than those offered to Time Warner or Direct or Dish in the market. Will enough consumers switch to make a business model work?

Lastly, why a fiber build? With the push to cloud and streaming, why a fiber connection. If the commitment by Google is to provide video service, why not partner with a company to provide nationwide wireless streaming and build out an authenticated technology to control who can access the stream. Make your programming deals and push the opportunity to reach a national platform. Now that would truly drive a competitive stake into the current cable/broadband model.