Google Inc (GOOG): How Austin Just Received a Dose of Fiber

As a direct competitor to Charter Communications, Inc. (NASDAQ:CHTR) in many metropolitan markets, AT&T Inc. (NYSE:T)’s new U-verse products would be in jeopardy of being outdated instantly. AT&T Inc. (NYSE:T) has one of the most robust balance sheets in the country, and spent $19 billion upgrading its cell phone and broadband networks last year.

AT&T currently has a dividend of 4.7% and pays out 53% of its free cash flow. If it were forced to compete with Google nation wide, we would see Ma Bell under immense pressure to further upgrade all of its networks, leading to massive increases in capex and potentially halting any dividend increases.

Foolish bottom line

Google Fiber will not move the earnings needle at Google Inc (NASDAQ:GOOG), but it sure will shake up the Internet service-provider business. Google makes more than 90 % of its profit from its robust advertising on its search business. Google’s plan for fiber-based Internet is to increase the speed of the Internet, driving up traffic and leading more people to use its search.

Google is not in the business of becoming an ISP as of yet. However, Google is rolling out a second wave of Google Fiber and going toe-to-toe with some of the largest companies in the US, which is putting them on edge. Google does not currently pay a dividend, and its plans for Google Fiber may just be an expensive experiment that lowers the cash mountain on its balance sheet.

Google is a company with a robust earnings engine and a sprawling number of pet projects. It boasts impressive margins, and management. Google should be purchased based on its search and advertising business, but Going forward Google Inc (NASDAQ:GOOG) may see more pressure from investors to pay a dividend like Apple Inc. (NASDAQ:AAPL) instead of letting the company sit on its mound of cash.

The article Austin Has Just Received a Dose of Google Fiber originally appeared on Fool.com and is written by Wes Patoka.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.