What began as a curious and expensive Google experiment is fast becoming a much-needed catalyst for change in an industry that has long been considered among the most anti-consumer businesses in America. Often characterized by poor customer service and regional monopolies, pay TV and Internet service providers have continuously raised service prices while also helping to ensure that broadband and TV competition is kept at a minimum. But despite the current state of the industry and its long history, Google Fiber is quickly becoming a disruption that can’t be ignored.
For those unaware, Google Fiber offers customers 5Mbps broadband service that is completely free and guaranteed to stay free for seven years. Those looking for quicker speeds can pay $70 per month for lightning-fast 1Gbps Internet service, and $120 per month gets customers 1Gbps broadband as well as TV service.
Needless to say, these three packages are infinitely more attractive than the service bundles available to most American households.
Google Fiber is currently available only in a handful of U.S. cities, but Google announced in February that it is considering expansions into nine additional markets: Atlanta, Charlotte, Nashville, Phoenix, Portland, Raleigh-Durham, San Antonio, Salt Lake City and San Jose. But despite its small footprint, major U.S. ISPs have been forced to react.
The Motley Fool recently took a look at the current reactions and potential future responses of two big players, Verizon and Comcast, from a business perspective. Where Verizon is concerned, the carrier has been investing heavily in fiber for years now as it continues to expand its FiOS service.
“Clearly, Verizon is placing a large bet on future need for fiber-optic based FiOS,” The Motley Fool’s Tyler Lacoma wrote. While its share price has fallen by more than 6% in the past several months on the news of the company’s increased debt, Verizon still had a healthy net operating cash flow around $38 billion last year. This cash flow can support its new capital structure and could lead to a stock price rebound in the coming months. Will FiOS be able to compare with Fiber when it comes to quality or price, though? Will Verizon’s cash flow remain steady if it has to battle Google over territory? If Verizon has its way then when Fiber comes to town, potential customers will already be comfortable with FiOS.”
Things get more interesting for Comcast.
According to Lacoma, Comcast and Google are on a collision course that could see Google Fiber soon pop up in several key Comcast territories, such as Salt Lake City and Portland. Moreover, he believes that within the next five years, “Google may have a presence in dozens of cities and Comcast will likely be under pressure to upgrade its older lines into faster networks. This would pitch the two companies against each other more directly.”
Lacoma discusses how these scenarios might impact each company’s share price, but one thing is clear for American households: If Google and Comcast are indeed on a collision course, consumers will be the real winners in the end.
