Google Inc (NASDAQ:GOOG) started rolling out Google Fiber back in November starting in Kansas City, and this week an analyst team at Goldman Sachs Group Inc (NYSE:GS) took a closer look at the technology and gives us an updated view on it.
Of course Google Fiber is the search giant’s plan to take high-speed fiber optic Internet and television capabilities to certain U.S. communities. The company said faster web service means more web searches, which is why it feels that fiber-optic Internet speeds are important. It appears as if Google Inc (NASDAQ:GOOG) wins no matter what happens—whether Fiber is the winner in terms of fiber-optic Internet or whether the company is able to scare competing broadband companies into expanding their speeds.
Google’s Ambitions With Google Fiber
First the analysts consider Google Inc (NASDAQ:GOOG)’s ambitions with the technology. The search giant has said it sees Fiber as its own standalone unit, but Goldman Sachs analysts believe the company has bigger ambitions.
They see the possibility that Fiber could enable Google to get into the television market, specifically to deliver targeted ads to the U.S. TV advertising market, which is worth about $60 billion per year. Other possibilities for Fiber include outdoor WiFi for consumers, pushing increased cloud processing or the acceleration of HTML5 adoption. In the case of the last two options on the list, Goldman Sachs said it would help “cement” Google Inc (NASDAQ:GOOG)’s dominance as a “provider of enhanced web-services on both mobile devices and PCs.”
What Google Fiber Means For Broadband Companies
Of course there’s no doubt that the rollout of Google Fiber will affect broadband companies. Goldman Sachs analysts also note that telecommunications and cable companies in the markets where Google Fiber has been rolled out have had various reactions. For example, Time Warner Cable Inc (NYSE:TWC) and AT&T Inc. (NYSE:T) have tried to get treatment similar to what Google has gotten in Austin and Kansas City. AT&T said it would match Fiber’s 1 Gbps service in Austin if regulators provide similar treatment for it. Time Warner Cable sped up the rollout of its outdoor WiFi service in Austin.
The analysts believe that one of the biggest threats from Google Fiber is its impact on the capital intensity of the telecommunications and cable industry. They see Google Inc (NASDAQ:GOOG) as being “ultimately indifferent” to whether its own Fiber or other broadband companies provide fiber-optic Internet speeds because both of them will result in its “vision of an open, services-based web.”
Google Fiber As A Scare Tactic
As a result, they think it’s possible that Google’s aggressiveness in rolling out Google Fiber and making announcements about its progress is simply a scare tactic designed to convince smaller companies that they need to offer fiber-optic Internet speeds. The analysts estimate that a nationwide rollout will cost between $80 billion and $110 billion for Google Inc (NASDAQ:GOOG), so they ask why a company that’s expected to report only $60 billion in revenue this year would push so aggressively into the broadband market. Also if the company is using Fiber as a scare tactic, it appears to have worked so far with Time Warner Cable Inc (NYSE:TWC) and AT&T Inc. (NYSE:T), as noted above.
Do We Really Need The Speed?
And finally, some have questioned whether we really need the high speed offered by Google Fiber. The analysts say that the average HD video stream needs less than 5 Mbps of bandwidth. Netflix, Inc. (NASDAQ:NFLX)’s Super HD streams only require 7 Mbps. This means that even if a family of five were to each watch their own video stream, the most that would be needed is 35 Mbps, and most broadband companies offer up to 50 Mbps.
Google Fiber goes up to 1 Gbps, which is well above these numbers, but of course it’s difficult to predict the future, especially when it comes to technology. They note that at one time, dial-up was considered to be “enough” in terms of Internet speeds, so it’s likely that Google Inc (NASDAQ:GOOG) is ahead of the curve on this.
