On Feb. 19, Google announced its decision to prescreen 34 cities in the United States for its Google Fiber Internet service; one of those cities was Raleigh.
Although it’s all still up in the air, this new development could be great for the Triangle for a number of reasons. First, and likely most importantly, it will provide some much-needed competition for the virtual monopoly that Time Warner Cable and Comcast have over the Internet market.
According to the American Consumer Satisfaction Index, Comcast, presumably begrudgingly, holds the title of worst consumer satisfaction rating, followed by, you guessed it, TWC. That being said, it’s no wonder that the $45.2 billion dollar acquisition of TWC from Comcast has been described as “the worst consumer satisfaction disaster in history” by popular sources in the media.
According to a report by the Information Technology and Innovation Foundation, about 89 percent of residents in the U.S. are limited to choose between five broadband providers.
The most prominent of those providers are TWC and Comcast. If the top two companies managed to successfully merge together, competition, for all practical purposes of the word, would be next to nonexistent.
Google Fiber offers viable alternatives to both the gross overpricing of Internet and the current sluggish internet speeds consumers have to choose from. According to the State of the Internet Report, the U.S. ranks ninth in the world in terms of Internet speed with average speeds of 8.6 mbps. South Korea has an average speed of 22.1 mbps.
Although TWC and Comcast vehemently deny that their consumers want faster Internet speeds, state governments in Tennessee and Missouri have established gigabyte Internet connections in their cities, while other cities such as Chicago and Seattle are rumored to have network construction of gigabyte fiber on the radar.
Google Fiber’s current model of production offers three different plans: a “free” Internet plan whereby customers pay a one-time fee of $300 and get 5mbps download Internet speed free of charge for at least seven years, which equates to about $3.50 per month. Then there’s a gigabyte Internet speed connection (about 100 times faster than the U.S.’s average) for $70 per month and a gigabyte plus TV plan for $120 per month.
If you buy either of the latter two plans, the construction fee is waived and numerous bonuses are thrown in, including two terabytes of DVR storage, one terabyte of Google Drive storage and a Nexus 7 tablet for the $120-per-month plan.
This is obviously better than anything that TWC, Comcast or the combination of the two have to offer. Neither TWC nor Comcast can come close to competing with the high-speed Internet plans that Google Fiber has to offer.
If you are skeptical that Google Fiber can really make money outdoing the most leaders in broadband internet in the U.S., I don’t blame you, but it is easy to see how this is the case. For years the dominant Internet providers have systematically ensured that they are the only major competitors in the market, and their recent plans appear as though they intend on making that final.
There are barriers to entry in the internet industry that are too difficult for nearly any company to get into the market. Although some companies such as AT&T and Verizon have had a good swing at it, they do not have the infrastructure to seriously infringe upon the profit margins of the larger providers.
And this seems to be the case anywhere: it is simply too expensive to start an internet-providing company. This has made the industry remarkably profitable. According to the MIT Technology Review’s David Talbot “cable distribution giants like Time Warner Cable and Comcast are already making a 97 percent margin on their almost comically profitable Internet services.”
This figure can be a bit misleading in that it fails to account for all of the initial investments that it took for TWC or Comcast to be able to provide their services. Nonetheless, those have already been paid off by those large companies so currently the figure is an accurate representation of the profit margin they hold in today’s industry.
Nobody can be certain where Google will decide to install its networks now, but if Google can get a significant market base in a number of major U.S. cities, Internet prices will be forced to drop because consumers will have more internet providers to choose from.
