Google’s secret strategy with the Kansas City Fiber project

From: Bill St. Arnaud
Date: Thu, Jul 12, 2012
Subject:  Google’s secret strategy with the Kansas City Fiber project
[I have long been perplexed at how Google plans to make a profit with
their Kansas City Fiber project. Originally the project was touted as
an altruistic move by Google to really understand the underlying costs
of deploying fiber in a large municipality. But as anyone who has been
in the trenches can tell you, it is not the technology that determines
the cost of a fiber deployment, but the tyranny of the take-up. If you
only have an initial 10% subscription rate then the initial cost,
regardless if the fiber is on poles or buried, can be as much as $6000
per home. If the take-up is closer to 50% the initial cost drops to
around $1500 per home and if the take-up is close to 100% then the
cost can be as low as $500 per home. The elbow in the curve for
deploying fiber to the home is around 40% take up, at which it might,
just might, be conceivable to make a return in your investment.
But Google is competing head on with the local cable and telephone
incumbents who are not going to sit on their hands and watch Google
take away 40% of their market. Since their infrastructure has been
paid for many times over through regulated rate of return on their
basic service of cable TV and telephone, they can discount their
prices to next to zero to prevent Google from making anywhere close to
a 40% take up. So how is Google going to make a profit?
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