In the jargon of the telecom business, Google Inc (NASDAQ:GOOG)‘s Google Fiber is an “overbuilder,” a broadband company that comes into a territory with Internet needs already provided by a cable operator and possibly a local telephone company’s DSL service.
But in the past many overbuilders became overreachers and just couldn’t get the market penetration needed to survive. Will the same thing happen with Google Fiber?
Bernstein based the findings on its door-to-door survey of Kansas City residents. Kansas City was the site of the initial Google Fiber installation. Of the 204 people questioned, 98% were aware of Google Inc (NASDAQ:GOOG) Fiber, 52% said they would “definitely or probably” go with the service, and 25% said they might. Only 19% were definitely or probably not likely to buy it.
Those favorable percentages indicate a potentially much higher penetration rate than was historically earned by overbuilders — 20% to 30% was the most they could get in their best markets, according to Bernstein.
What Google Fiber offers is incredibly fast Internet speed. One-gigabit-per-second uploads and downloads for $70 a month. That’s 100 times the speed of the average Internet connection, according to Google. For an additional $50 a month, one gets HDTV with a Nexus 7 tablet to use as a remote control and a DVR. Premium channels are extra.
But Google Inc (NASDAQ:GOOG) Fiber has a long way to go before it can realistically challenge the big cable operators. The first phase of Google Fiber’s buildout in the Kansas City area passes (but is not necessarily connected to) 149,000 homes. For comparison, Comcast Corporation (NASDAQ:CMCSA) passes 53 million homes, Time Warner Cable Inc (NYSE:TWC) passes 30 million, and Charter Communications, Inc. (NASDAQ:CHTR), 12 million.
As reported by TechCrunch, Bernstein analysts Carlos Kirjner and Ram Parameswaran estimate a Google Fiber network to cover 20 million homes over five years would require an “annual capex investment [of] $11 billion” just to pass the homes without even acquiring any customers (let alone wiring them up).
So yes, the infrastructure costs for a Google Fiber build out are staggering, but “Google Inc (NASDAQ:GOOG) has the resources to continue to build out and extend its footprint, even if the profitability of its initial markets is hampered by aggressive incumbent price cutting,” according to the Bernstein report.
There is one aspect of Google Inc (NASDAQ:GOOG) Fiber that may just be more attractive than its Internet speed figures. The Seattle Times spoke to a number of the Kansas City Google Fiber subscribers and found this: the fast Internet was nice but what really impressed the customers was the quality of Google Fiber service and the opportunity to get rid of cable companies that only succeeded at disappointing their customers.
If Google Fiber is able to maintain a high quality of human service — as well as technical service — over time, then those cable boxes may very well end up in the trash.
The article Can Google Fiber Kill the Cable Box? originally appeared on Fool.com and is written by Dan Radovsky.
Fool contributor Dan Radovsky has no position in any stocks mentioned. The Motley Fool recommends Google Inc (NASDAQ:GOOG). The Motley Fool owns shares of Google.
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