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How Long Will Google Keep the Fiber Flowing?

Jeff Baumgartner
LR Cable News Analysis
Jeff Baumgartner
8/15/2012
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If Google (Nasdaq: GOOG)'s fiber experiment in the Kansas Cities goes badly or it simply wants to hand it over to someone else, it's got an out. Google can terminate its agreements two years after it started building the networks.

That's just one of several favorable clauses that are present in Google's sweetheart deal with the cities, according to franchise agreement documents obtained by Light Reading Cable. (See Google Fiber Bundles TV, Shuns Data Caps.)

Google, of course, has shown no signs that it intends to walk away, but it doesn't need much of a reason to do so.

"Google will have the right to terminate the Agreement for convenience at any time up to two (2) years after actual construction commences on the fiber network," the franchise agreement states.

If the deal is terminated after services are launched, Google and the city can create a new operating agreement "for the continued use of the existing fiber network, which could involve operation of the network by a third party."

Google's savvy deployment model, which requires that a certain number of homes in a given "fiberhood" (areas with 250 to 1,500 households) pre-register for the service for a $10 fee, is also baked into the deal. The city is allowing Google to "build the fiber network on a demand-driven basis, allowing the citizens of the City to determine where and when the Project will be deployed," according to the agreement. (See Google Fiber's Drive for Density and Who's Rallying for Google Fiber?)

While that's a clever way to stir up excitement about the project while adding in deployment efficiencies, it's not a model that franchise deals have historically allowed; they usually require the operator to make service available to all areas within a franchise region, and to get it done within a certain timeframe. The idea is to keep an operator from concentrating on affluent areas first while ignoring poorer neighborhoods -- a cherry-picking no-no called "redlining."

In fact, there is no hard deployment target mentioned in Google's agreement with Kansas City, Mo., the initial term of which is ten years (unless Google uses its two-year out), with the option for successive five-year terms.

But Google says it's committed to bringing services to all fiberhoods that qualify under its build-by-demand model. "We will build Google Fiber in the areas of Kansas City, KS and Kansas City, MO that meet their pre-registration goals," a spokeswoman says via email.

Google's first fiber "rally" is underway. At last check, 14 fiberhoods in Kansas and 49 in Missouri have already met their pre-registration goals, and there are 25 days remaining in the first round.

Google Fiber's also set its sights on Westwood, Westwood Hills and Mission Woods, Kan., as part of a phase II rollout that will apply the same model. It's just waiting for the three city councils to approve it. (See Google Fiber Sizes Up More Territory.)

In it to win it
The early rally results show that there's plenty of interest in Google Fiber, but the franchise agreement's loose deployment targets and conditions likewise show how anxious the city was to win the Google Fiber competition, says Effros Communications President Steve Effros, a veteran cable lobbyist with a deep understanding of franchise rules.

"Google got an absolute sweetheart deal," Effros says. "They [the cities] wrote a franchise that no cable operator could have possibly gotten when franchises were being argued over and fought over in the 1990s and 2000s. The franchises operators have today are far more restrictive than this thing they've given to Google."

Google also represents new competition for the area's incumbent operators, so that's one reason Google was given some advantageous leeway. Still, other overbuilders typically did not receive nearly as much special treatment from franchise authorities.

Also, no part of Google Fiber's contract with the city requires it to operate its new network under an open access system that would let other ISPs jump on and sell services. Google promoted the open access idea in the early days of its fiber project, but "that disappeared before they even dug their first trench," Effros says.

Google, meanwhile, argues that it offers the best option. "We don't think anybody else can deliver a gig the way we can," Google Fiber Project Manager Kevin Lo told The Kansas City Star in July when asked why the open access idea was left behind.

— Jeff Baumgartner, Site Editor, Light Reading Cable



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mj42
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mj42,
User Rank: Light Beer
12/5/2012 | 5:23:52 PM
re: How Long Will Google Keep the Fiber Flowing?


I'm not one to stand up for big MSO business or service models, but if I were one of the incumbent providers I'd be looking for consessions from KC. There is a huge capital cost to deploy service to all areas of a city regardless of service take rate. This cost must be recovered through fees from those that take the service. Letting Google only deploy in areas with a high enough take rate greatly reduces the costs that must be recoverd and this reduces the price they must charge. If the city wants to go that way they should expect any incumbent that rolls out new services to request the same treatment. Like only rolling out DOCSIS 3 network upgrades in profitable areas. I'm not sure KC is going to like where this goes.

Lrmooney
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Lrmooney,
User Rank: Light Beer
12/5/2012 | 5:23:51 PM
re: How Long Will Google Keep the Fiber Flowing?


This no deadline, no committment to plant trees, support schools, or service all neighborhoods is beyond me....i hope TWC goes to the city or the courts, competition is good, but it must pretend at least to be even steven

trejrco
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trejrco,
User Rank: Light Beer
12/5/2012 | 5:23:51 PM
re: How Long Will Google Keep the Fiber Flowing?
But it is different.

The cable & telcoms are being given a de facto monopoly over a large user base, that is what allows costs to be recouped.

In Google's case, similar to a CLEC (but running their own lines) they are the "underdog" and do not have a monopoly status.

I think this will al lbe a very itneresting experiment, and competition is a good thing.

For example - FiOS makes the cableco's "do better", and I am hoping Google does the same to all of the other players.

Eventually, there may be other considerations (for example, if it gets to the point that Google is the encumbant monopoly) ... but that is a ways off yet, and isn't (IMHO) Google's goal.
opticalwatcher
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opticalwatcher,
User Rank: Light Beer
12/5/2012 | 5:23:50 PM
re: How Long Will Google Keep the Fiber Flowing?


Letting Google only deploy in areas with a high enough take rate greatly reduces the costs that must be recoverd and this reduces the price they must charge. If the city wants to go that way they should expect any incumbent that rolls out new services to request the same treatment. Like only rolling out DOCSIS 3 network upgrades in profitable areas.



Seems to me there's an enormous difference between only deploying in areas with a high take rate and only deploying in profitable areas. A high take rate is defined by customers putting up a $10 registration.


And, at least in my neck of the woods, it certainly looks like the ISPs are already following the 'profitable area only' plan.

mgcarley
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mgcarley,
User Rank: Light Beer
12/5/2012 | 5:23:50 PM
re: How Long Will Google Keep the Fiber Flowing?


Remember a couple of years ago when towns were scrambling to be the lucky ones to get the project (and thus, bragging rights)?


Kansas City did what it had to do to win Google's heart, which likely involved generous concessions.


So irrespective of what the competition is doing, has been doing, the monopolies they hold or have held in the past, Google has - to their misfortune - apparently turned the tables - rather than the operator scrambling with the town to cover that area, the town is instead scrambling with the provider to cover it's residents.

mj42
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mj42,
User Rank: Light Beer
12/5/2012 | 5:23:49 PM
re: How Long Will Google Keep the Fiber Flowing?


But it is different. The cable & telcoms are being given a de facto monopoly over a large user base, that is what allows costs to be recouped.


I agree, but with the existance of Google in the market there is no monopoly anymore thats why I said the MSO could roll out future services in only profitable areas. Get rid of my monopoly and free me from universal coverage. It is the city through their cable franchising regulations that control universal service. Once they give that up to one competitor they should give it up to all operators for future services or there isn't a level playing field anymore. They chose to give it up to get Google, if I were the MSO I'd use it.


Christopher Mitchell
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Christopher Mitchell,
User Rank: Light Beer
12/5/2012 | 5:23:38 PM
re: How Long Will Google Keep the Fiber Flowing?


Umm, it was AT&T and other telecom interests that changed the law in Kansas, prohibiting local governments from making various requirements of those seeking a franchise.  If Time Warner Cable has a problem with this, they have themselves to blame. These companies have embraced cherry-picking.

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