Google Inc (GOOG) Fiber: What Are The Costs Of Expansion?

Google Inc (GOOG) Fiber: What Are The Costs Of Expansion?
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Google Inc (NASDAQ:GOOG) revealed this week that it will begin talking with 34 different cities about possibly putting in Google Fiber. Of course that brings along a mixed bag for investors. Bernstein analysts believe investors are wondering three main things: how much it’s going to cost, what kind of impact it would have on other providers in those markets and why Google is doing this.

How much will it cost Google?

Of course the first thing on investors’ minds is the cost. Bernstein analyst Carlos Kirjner and his team estimate that the “fixed network investment” would run up to between $2.2 billion and $3 billion, possibly toward the bottom of that range. Google Inc (NASDAQ:GOOG) might not build in all 34 cities. However, the Bernstein team believes that the company will build in all 34 markets if it can get support similar to what Kansas City offered.

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Google Inc (NASDAQ:GOOG) is just now beginning discussions with them on a number of issues, like access to poles and conduits and an accelerated permit process so that construction could be sped up. The search giant will also be asking about labor and environmental requirements and on a variety of other topics which will affect the cost and the amount of time it takes to deploy Google Fiber in those markets.

How will Google Fiber impact other ISPs?

The analyst team suggests that it’s possible some incumbent Internet service providers in the markets Google Inc (NASDAQ:GOOG) is targeting might offer to upgrade to gigabit speeds, perhaps through partnerships with the cities. If this happens, they think Google might simply decide to build somewhere else.

Other than that possibility, they see this early announcement from Google Inc (NASDAQ:GOOG) as having only a “negligible” impact on incumbent providers. However, in the longer term, the implications could be more so. They said at first, even if Google captures half the homes it passes, this might not have much of an effect on ISPs. However, if the company is following the plan they think it is, the company could be preparing to replicate its expansion in multiple markets over and over.

Why is Google rolling out Fiber?

The Bernstein team suggests that Google Inc (NASDAQ:GOOG)’s main motivation is simply building an “attractive, profitable, high IRR business using its assets and engineering skills.” They don’t think it’s about seeing how people use faster Internet speeds or attempting to influence regulators or policy makers.


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