AT&T Announces Intent to Build 1 Gigabit Fiber Network in Austin
att.com
att.com
AT&T is telling Google that they'll play in any market Google commits to and drive the margins out of it. They want Google to stop doing this, and they're hoping to make Google question its financial model for this capital outlay. (I doubt it will faze Google.)
AT&T is warning other municipalities to not cut Google any sweetheart deals that they're not willing to extend to AT&T. This is a potent message for municipalities that are sitting pretty on financial or other perks they've extracted from AT&T or other telecoms. AT&T is warning them the gravy train stops when they let in Google.
While Google may indeed have some thoughts that with all this popularity and head-start they could become a major ISP in US, their primary and original goal was exactly to get other companies to start offering Gigabit and affordable fiber connections, with no other limits or caps.
They were instrumental, for example, in getting the FCC to force VZW to treat LTE service as a dumb pipe as a condition of the spectrum sale.
And while much has been made of T-Mobile recently going contract-free, Google was pushing that with the original Nexus years ago, and I had a no-contract, un-subsidized G2 through T-Mobile in... 2010?
Google already owns a ton of dark fiber, so it kind of makes sense for them to threaten the telecoms with competition to push things along. Building out a mobile network is a much bigger undertaking, so their pushes there have been -- and I suspect will continue to be -- a bit more behind the scenes in nature.
One of the conditions of the spectrum license was that VZW couldn't restrict what devices were allowed on the network and that they couldn't restrict what applications ran over the network.
VZW got hit with a $1.25M fine by the FCC last year for blocking tethering apps on LTE.
http://www.theverge.com/2012/7/31/3207193/verizon-fcc-tether...
Google's been heavily involved in efforts centered around the use of spectrum "white spaces" for broadband, including for mobile devices; they aren't likely to become a traditional mobile provider, but...
The interesting thing is that AT&T's response is not going to help them, but the thing they actually could do is what Google would like them to do -- install gigabit fiber in other cities, that Google isn't in yet.
If Google installs fiber in a city and AT&T doesn't, that city belongs to Google. AT&T is going to lose the large majority of their customers in that city if they don't upgrade their network in response. But if AT&T does install gigabit fiber in that city, now they're in the position of having to make a large capital investment only to enter an aggressive price war. In either case, for that city, AT&T is screwed.
However, suppose AT&T decides instead to install gigabit fiber in, say, Chicago, or Hartford. Preemptively. Those cities immediately fall off the short list for the next Google Fiber rollout, because why put fiber in a city that already has it when there are so many that don't? So now AT&T owns the market in that city. They still had to make the capital investment, but at least now they stave off the subsequent price war. And if they do it in all the cities in their service area which would be good candidates, the next Google Fiber city ends up being in Verizon territory -- unless Verizon et al all do the same thing, in which case Google may just bow out having accomplished their goal.
"This expanded investment is not expected to materially alter AT&T’s anticipated 2013 capital expenditures."
So, they've had the capability for a while now. They just didn't see any reason to bother with the hassle of deploying a newer technology when they could just keep maintaining U-verse over twisted pair, even if capex stayed the same for either choice. Which is an interesting choice.
As a non-American, I can only imagine the class-action lawsuits...
EDIT:
http://www.pbs.org/cringely/pulpit/2007/pulpit_20070810_0026...
For example: Valve, Google and Facebook all try to be "good," since their target audience are often young, technology-oriented people who care about how good the company is.
But for some corporations, it doesn't matter what their users think. Majority of AT&T customers are average people, who know nothing about ISPs and slow Internet. They just want their "Skype-box" to work.
The AT&T gravy train just gets replaced with the Google gravy hyper-rail.
Google never dreamed of becoming a telecom monopolist. It just wants faster, cheaper internet for everyone. Google wants more people online, more people googling, more people clicking on ads.
So AT&T's announcement? Exactly what Google wants. Well, this, or AT&T announcing it will sit on its hands while Google patiently erodes their subscriber base. Either one, really, is a win for Google. To use a chess analogy, AT&T (and friends) have been "forked."
However going head to head with AT&T in Austin will NOT help this effort. AT&T is signaling Google and, more importantly, other potential gigabit internet service providers that it will compete with you and thus reduce your margins in a very capital intensive (i.e. risky) business. Anybody considers something similar in another city will think again.
Does anyone think the timing is a coincidence? If not why is AT&T doing this?
I would speculate that AT&T cannot handle any more capital spending and the debt it would require. They can barely keep up with the spending on mobile and their landline business is dying. Internet service over their existing (i.e. paid for) infrastructure has got to be their best business (certainly on return on capital). Google Fibre does them no good.
Lots of firms with an established role in a market "signal" things like that when a competitor is heading to market with a new product ahead of them. Fewer of them follow through effectively.
This is why capital intensive industries typically are dominated by a small number, often just one, of big firms. This has been well studied in a branch of economics called Industrial Organization.
A standard reference is Sutton's "Sunk Costs and Market Structure: Price Competition, Advertising, and the Evolution of Concentration" (2007) http://www.amazon.com/Sunk-Costs-Market-Structure-Concentrat...
Sure, if Google didn't have the money lined up for Austin when they announced Austin, AT&T's signalling could jeopardize it, but, because its such a capital intensive industry (and because its not Google Fiber's first time around the block, either), that's unlikely.
What would jeopardize Google Fiber's longer term effort is if AT&T actually delivered something in Austin that made Google Fiber there unprofitable (and even then, it really only threatens Google Fiber if Google doesn't perceivea greater benefit to its other services from getting widespread affordable 1Gbps service to consumers than the loss from continuing to expand Google Fiber.)
> This is why capital intensive industries typically are dominated by a small number, often just one, of big firms.
Yes, because its hard for anyone to get the capital to make the outlay to compete, regardless of "signalling" by existing market players. Usually, anyone who has the capital has a less-risky way to invest it than trying to break into a capital-intensive industry with established players.
However, if a big player in another major industry with enormous resources to which the actions of the established players in the capital-intensive industry are a risk (as is the case with Google vis-a-vis the telecoms) is involved, there is a different story, as that player's interest in the industry extends beyond the gains that can be made in that industry. (Actually, that doesn't change the long-term trend of concentration, it just makes it more likely that the trend will be bucked in the short-term by the introduction of a new player.)
Yeah, that's what I took as your original point. I just think "reduced margins" is a completely empty threat to Google.
Say I sell widgets. Now, you sell widgets too, but your primary revenue stream is driven by "widget penetration," ie, the total number of widgets owned and used.
We have a price war. Who wins?
You do, because people having widgets is valuable to you, so you just give away widgets at cost. No, wait, you go farther. You split the increased revenue from your primary stream with your widget customers, you give people widgets UNDER COST.
And I'm sitting here, giving my widgets away for nothing, thinking, "He's going to rue the day he price warred with me. I have deeper pockets, so I can lose money longer."
But you're not losing money, you're increasing your revenues every day. My pockets can be 100 times deeper than yours, and I will still head, puzzled, straight to bankruptcy.
I mean, capital intensive, yeah, that'd matter for someone who didn't have cash to burn, but not Google.
Maybe this was where you were heading: No one can really join Google in this effort. Google cannot inspire a transformation then step back and let it happen. It now has to see it through, because the economics are unique to it, they don't apply to Joe Schmoe's neighborhood ISP. That might be true.
I can't imagine they actually want to spend tens, if not hundreds, of billions to wire even most US urban consumers with gigabit connections. This would radically change the nature of Google's financial position. Yes they would gain on search advertising but could it possibly justify the cost?
AT&T is seeking to demonstrate how competitive and thus unprofitable this business will be making it very difficult to justify the costs or even obtain financing. Sadly while this is good news for Austin it is probably bad new for everybody else hoping for a gigabit connection.
Now if only San Francisco could get some decent internet! I've been hoping for monkeybrains to expand further from the Mission so I can drop Comcast.
The thing that's exciting about Google Fiber is what it represents -- reasonable cost, no bandwidth caps, net neutrality, etc. Google WANTS its customers to use the Internet as much as possible. The more HD videos people watch on YouTube and the more people surf the web the more ads they show and the more money they make. The opposite is true with AT&T -- they'll start metering and charging the second they can.
I'd take 100Mbit Google service over 1Gbit AT&T service any day of the week.
Where? The entire time I've lived in NYC, in neighborhoods with population density between 30k to 70k people per square mile, I've never, ever, ever had FIOS available to me.
Sure, I've heard about the rare building that has it, but as far as I can tell, it's marketing with just enough actual deployment that we can't call it vaporware.
You likely lived in an MDU (multiple dwelling unit), i.e. an apartment. FiOS requires the building owner to enter into an agreement with Verizon. It doesn't cost the owner anything, but they have to let Verizon in the door, since Verizon deploys new equipment. Typically it's an MDU ONT (Optical Network Terminal) capable of delivering voice, data, and video over existing infrastructure in the building. In an older building, this typically means that the last 100-1000 feet of your data service is VDSL (over legacy two pair copper) or MoCA (effectively a capable modem over coax).
Which is, like, nobody in new york city. Quit complaining everyone!
A while back they told me the fiber had been in the avenues for a long time, but the hinderance was running the fiber from the avenues to the back yard utility poles. Specifically, they needed to get permission and backyard access from every owner on the block to pull cable. Knowing how notoriously difficult it is to get a landlord to do anything in NYC, I imagine this was no easy scheduling task.
I want to choose who I connect to the internet through, just like I choose grocery stores, cell phone providers and just about anything else.
What you are seeing, at least in Texas, is the historical division between what used to be GTE and Southwestern Bell. Back when those companies were regulated utilities, you are exactly right: the markets were divvied up between the two. Generally, Southwestern Bell got the big cities and GTE got the suburbs and rural areas. Inertia and a general unwillingness to rock the boat means that situation persists, though you can see some areas where it has melded.
Which is great if you're in NYC. There are huge portions of the country -- I'm familiar with the former Bellsouth territories personally -- where you can't get FiOS or U-Verse at all.
I'm in a metro area with ~250k people, and you might be able to get 6Mbs DSL from AT&T; many areas of the city top out at 3Mbs.
My pro-customer argument is that this is great for competition in Austin.
My I-live-in-SF argument is why isn't anyone doing this for us? I can't really think of another major city in the US outside of NY, Chicaco, or Boston where this would have the most impact. You have thousands of companies built on the Internet in SF. Lots of us techies live here. Please, give us a choice beyond Comcast!
Consumer ISPs have long deployed their fastest technology in response to a competitor (typically, but not always a municipally funded competitor) deploying a fast network.
You need to remember, Comcast started charging Level 3 (who distributes some of Netflix's content) for peering. There's nothing illegal about this, but think about what it means is Comcast is now selling its customers to the content companies; you are no longer the customer but the product.
If they did, it'd take ~250 seconds at full throttle to use up your download limit. Provided they are charging for overage, this could be very profitable for them.
Sorry for the nitpick - By L3, I'm assume you mean Level 3 Communications, not L-3 Communications. Netflix uses the former's CDN services, I believe.
Thanks, corrected. That's what I get for not googling my facts before posting.
Honestly, this whole focus on "competition" is completely missing the point. It doesn't matter if you have one company, or two companies, or three companies, or ten companies offering the service. If there's a way, they're going to collude.
The point is that AT&T is trying to kill off Google's Internet business. It takes many years to earn back the cost of laying new fiber.
If Google knows that AT&T is going to avoid building wherever they are, Google would just keep going with their plan.
It is really really really expensive to do anything in SF, much less deploy fiber on a wide scale basis.
(I also live in SF. I <3 sonic but don't live in a place where they have fiber and even they can only do so much.)
Did Google do the political work here and leave the door open for competition?
I suspect this overstating the case significantly -- I think its basically right in that Google's prime motivation is to push the market toward widespread, ultra-high speed access. But I think that by the time they launched Google Fiber, and certainly before they expanded it to Austin, they also had a model where it was worthwhile beyond being a lever to move the industry, between direct revenue and the opportunity to use it as leverage to promote the Android ecosystem through the Nexus devices tied to it.
As with the Chrome browser, heck and even Android itself, what Google does with the prime motivation of moving the market (and preventing another vendor from getting/keeping a monopoly which they can leverage against Google) isn't necessarily a "burden".
Incidentally, AT&T did a lot of similar political work for others years ago when they were starting their U-Verse rollout.
They lobbied in numerous states for video franchises to be granted on a state-wide basis, rather than having to go to each individual municipality and negotiate deals. That allowed them to basically steamroll into an area.
When AT&T did this, the laws were written such that the cable companies selling service in the same areas could tear up their contracts with the municipalities and go statewide as well.
I think a lot of people have been unhappy with their service providers for a long time, for more reasons than just the speed.
I realize it's possible since this is a (relatively) expensive paid service, but Google has a lot less experience doing customer service even less than AT&T or Comcast. And their usual approach of "Make a webpage listing common problems" might not work as well for fixing internet service outages.
But to assume that municipalities want a uniform set of rules for all comers would be without basis. Municipalities want to negotiate with vendors to extract concessions.
Laws can be written, without naming names, that apply only to individual firms. Maybe Austin will say that the new rules and incentives only apply to firms below a certain market share. Or to firms that don’t also operate mobile networks. Or firms that have, or don’t have, some geographical footprint. Or which employ a certain number of Texans, or Austinites. Etc.
Southwestern Bell and its sister baby bells were subsidized to the tune of hundreds of billions of dollars in the 90s in exchange for a promise to roll out a nationwide network of fiber to the home. Needless to say the network never materialized but the telecoms kept the money.
Ref: http://www.pbs.org/cringely/pulpit/2007/pulpit_20070810_0026...
Here, in the Bay Area, the majority of the LEC lines belonged to Pacific Bell (You can almost always tell who the "real" company is by looking at the cable-vaults, the names of the holding company is written in engraved/raised metal that will last for 100+ years). The SF Giants Stadium was born as "PacBell Park"
Somewhere around 1997/1998, SBC Acquired all of Pacific Bell - so 100% of the PacBell LEC lines became SBC lines. Your Phone Bill now read "SBC", and a few years later, PacBell Park became SBC Park.
Then, in 2005, SBC acquired AT&T, and, because AT&T had a stronger global brand, they changed their name to be "AT&T", even though AT&T was now just one component of the larger SBC.
What's really confusing, is somewhere around 2003/2004, LEC competition was deregulated a bit, and the 2003 AT&T starting offering Local Phone services in the Bay area.
So, you ran into scenarios where you would get a visit from both AT&T and SBC trying to sell you local phone services. I actually purchased a pretty good sized Long Distance/Data/LEC package from AT&T for around $15K MRC for our office buildings in Sunnyvale.
The reason this is confusing, is that when SBC acquired AT&T, you now had two classes of AT&T customers, those with SBC legacy facilities, and those with AT&T legacy facilities. For about 5 years after the acquisition, every telecom consultant I dealt with avoided the confusion (for some definition of avoid, and confusion) - by continuing to refer to anyone getting their services from 2003 SBC, as "SBC Customers", even though, for the last several years, their phone bill read "AT&T".
So, ironically, for some customers in the Bay Area, AT&T lines actually are AT&T lines, but for most customers, they are SBC/Pacific Bell lines.
"However, in Austin, the agreements that Google has signed with the City of Austin are no different than the ones that AT&T and Time Warner have signed according to Laura Morrison, an Austin city councilwoman."
http://gigaom.com/2013/04/09/take-that-google-att-ups-the-an...
Who's to say that Watson's technology is even sufficiently well-suited for a search engine that it would give not only better results than Google, but results so much better that it would overcome inertia? Google has over a decade of machine learning specifically applicable to search engines. The fact that Watson does cool stuff on Jeopardy doesn't mean it's anywhere near ready to beat Google at its own game.
Simply put, these things are possible in the boolean sense of "not impossible," but are they remotely likely? No, I don't think so. They're stupendously unlikely.
You must be fairly young...when Google originally launched, few people thought that a plain white page with a search box could unseat Altavista, let alone Microsoft.
The point was not "Nobody will ever beat Google search no matter how much time passes." It was that Google being killed outright by a better search engine is extremely unlikely for the foreseeable future, so to call their long-term plans into question on that basis is specious.
Also, Google has not really unseated Microsoft. Microsoft's flagship products — Windows and Office — are still utterly dominant. Most of Google's battles with Microsoft have been from MS trying to encroach on Google's turf and losing. (I mean, yes, MSN Search existed before, but it was just a white-label AltaVista when Google entered the field.)
At any rate, Microsoft has been assailed on every possible front and is weakened but still massive. If you want a model of Google's future from '90s history, I'd say that's the worst case that's likely in the medium-long-term. AltaVista was a big search engine when the Web was small, but it was never Google.
Well then I apologize--that's how I read it.
In terms of how Google might "lose", the real issue is their ad revenue growth, and I'll give an example. My employer (a nonprofit) runs online ad campaigns to raise awareness on issues. We used to spend a lot with Google; these days almost all the money goes to a combination of Facebook, Twitter, Outbrain, and Taboola. Every one of those performs more efficiently than Google.
Google could get beat like Microsoft got beat--not destroyed, but not setting the agenda either. It used to be that Microsoft could just buy or leverage their way into markets if they missed the boat early. They did it with databases, with business accounting, with the browser, with mobile (the first time around). They can't do that anymore.
Google is buying their way into the ISP market...they may not always be able to do that, even if they maintain a solid search market share.
Notice the zingers to Google and to Austin officials: "AT&T’s expanded fiber plans in Austin anticipate it will be granted the same terms and conditions as Google on issues such as geographic scope of offerings, rights of way, permitting, state licenses and any investment incentives...AT&T consistently invests in U.S. communities -- $98 billion in capital in the past five years, more than any other public company"
AT& T is most likely gonna sue Austin unless they provide them with the same incentives as Google is getting.
Yeah, just like Google stopped making Chrome once other browser vendors followed their lead with a focus on JavaScript performance.
Why didn't you compare Fiber to the http://googleblog.blogspot.com/2013/03/a-second-spring-of-cl... ?
One thing that Google does better than anyone else (period) is build networks.
I've seen non-techie people use Chrome, none of them remembered how and why. My guess is that tried to download something else and it as bundled, or clicked on an advert when using Google. That might explain a large part of success. Chrome is pretty good, but then so is Firefox and (even) IE10.
One thing that Google does better than anyone else (period) is build networks.
Even if I assume that as true (surely many will contest it) somehow I suspect that that's not why we don't have 100mbs or GB service countrywide
No less so than developing a web browser was when Chrome was launched, or doing the same with a mobile OS was when Android was launched.
Perhaps more relevantly, Fiber has a similar role in terms of developing and promoting Google's existing core business as Android and Chrome did when they were introduced.
> Why didn't you compare Fiber to the [Google's "second spring of cleaning" announcement] ?
Because none of the products and features closed in the second spring cleaning were the focus of large-scale investment and promotion aimed at improving the market for Google's core offerings the way Chrome browser, Android, or Google Fiber is.
Could Austin make the argument that AT&T is only entitled to the incentives Google receives if they agree to the additional community work Google is doing (i.e. free fiber for schools, government buildings, and hospitals)?
It's more likely Google proceeds b/c they have a better business model with higher ROI on expanded fiber access for the whole country, ATT doesn't.
For Google this is a loss leader that will pay off if it gets more people watching more videos (and ads) on Youtube, and using other Google properties. Iirc, something like 90%+ of their revenue still comes from ads of various sorts.
Without something similar, ATT will have to gorge customers, meter and cap usage, and other things customers love so much.
Only way ATT can win this is by playing dirty, and I have no doubt they will. Hope Google is ready for it.
Considering Google have only spent $100 million on their impressive fibre network thus far, AT&T have a lot of catching up to do here to meet the same service offering Google is giving customers (no network caps, fast speeds, a new and reliable network).
Lots of trenching around town, tons of interduct.
Then the winds shifted, and they shut the project down.
For some reason it never caught on :-)
What firms are HQ'd in the Austin and surrounding areas...
http://money.cnn.com/magazines/fortune/fortune500/2012/state.... Whole Foods... Dell... I wonder what types of conversations Google & Dell have been having?
Pretty sure the answer to that is zero.
In the Chicagoland area, their DSL service was simply horrible, and it languished, until Comcast started rolling out Internet and triple-play (cable TV, Internet, and phone).
Suddenly, AT&T's market was at material risk.
Even then, their Internet offerings remained poorly supported, if relatively somewhat improved.
I suspect the primary reason for this announcement is for use in manipulating various political entities, including Congress. Also, some public PR value, from those who are still inclined to believe anything they might have to say.
Note that today's AT&T is really SBC. AT&T was a mostly empty shell at the time SBC bought them up -- largely, I suspect, for the branding.
"AT&T’s ... anticipate it will be granted the same terms and conditions as Google on issues such as geographic scope of offerings, rights of way, permitting, state licenses and any investment incentives."
They want to make a case out of Google getting preferential treatment to build out its network (which they are).
Examples: http://www.muninetworks.org/content/atts-many-broken-merger-...
And of course the biggest scam of all: http://www.pbs.org/cringely/pulpit/2007/pulpit_20070810_0026...