Capex Plummets in Alphabet's 'Other Bets'

Fiber really is falling out of favor in Mountain View.

Alphabet Inc. , the parent company of Google (Nasdaq: GOOG) and "Other Bets," reported earnings this week that generally exceeded expectations. But while Alphabet celebrated the success of its traditional advertising business and enterprise cloud services, the company said very little about its strategic plans for the subsidiary endeavors categorized outside of the Google money-printing regime. (See Google Growth Driven by Enterprise Cloud & Machine Learning.)

Namely, Alphabet said very little about its plans for Google Fiber Inc. , except to point out that capex has declined in its Other Bets category, dropping like a stone after Alphabet "reduced investment in Fiber due to the pause in expansion we announced in 3Q 2016."

Just how much did capex drop? For the quarter, capital expenditures attributed to Other Bets totaled $151 million. That compares to $280 million last quarter, and $504 million in the fourth quarter of 2016.

If there was any doubt that Alphabet was backing away from fiber deployments, the capex numbers, and the company's reference to them, seem to provide proof. Alphabet is no longer spending significant money to bring fiber-based broadband services to consumer homes. Instead, it's considering its options for wireless deployments through the company's acquisition of Webpass, and perhaps backing away from the idea of expanding its role as an Internet service provider in the future.

For more broadband market coverage and insights, check out our dedicated gigabit/broadband content channel here on Light Reading.

Google Fiber was an early success as a catalyst in the gigabit broadband market, but it hasn't had the staying power to be an ongoing competitive threat to incumbent providers. Capex aside, the loss of its most recent CEO after a short five-month stint only underscores the business unit's difficulties.

Meanwhile, on the video side of the house, Google's YouTube has prospered. Alphabet reported that the online video platform now has 1.5 billion viewers monthly, and that consumers average an hour of YouTube viewing daily on their mobile devices.

But while Alphabet cheered the success of YouTube Inc. , it still didn't break out the division's financial numbers for the quarter, something at least one analyst reporting at MarketWatch suggested could be damaging to the company's stock.

Alphabet also had little to say during its earnings report about the new YouTube TV offering, which the company is hoping will help siphon customers away from cable and telecom providers even where Google Fiber can't. (See YouTube TV Is Here... in 5 Markets.)

YouTube TV expanded its reach to ten new cities last week, bringing the total number of markets with availability to 15. However, Alphabet is still a long way from challenging the traditional TV market even with a growing number of consumers turning to new online video offerings. YouTube TV viewers can be counted in the thousands today, while millions of viewers still rely on old-style pay-TV services. In the TV business, Alphabet still has a long way to go.

— Mari Silbey, Senior Editor, Cable/Video, Light Reading

Duh! 7/26/2017 | 12:34:57 PM
Flip-flop At FiberConnect in mid-June, Greg McCray (now ex-)CEO of Google Fiber was talking about a restart. The plan was to end-run the make-ready problem by micro-trenching rather than battling over pole attachments.

Perhaps he stepped down because his plan did not get backing from Alphabet?
msilbey 7/26/2017 | 12:14:57 PM
Re: glass half full? Well said.
mendyk 7/26/2017 | 12:09:14 PM
glass half full? Kind of a good news/bad news thing for CSPs. Good news is that Google is less of a competitive threat for wireline broadband service. Bad news is that Google doesn't think wireline broadband service is worth pursuing.
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