After its first company shareholder meeting this week, Alphabet has me convinced that it wants to be a serious communications network provider in America's cities. Why? For two reasons. First, the company believes it has innovative technology that will make it cheaper to network cities with high-speed, low-latency broadband. Second, Alphabet sees a huge business model opportunity in fostering the applications that power the cities of the future.
Alphabet Inc. executive chairman Eric Schmidt addressed the first issue of cost-effective broadband deployment in response to a shareholder's question about Google Fiber Inc. Asked about the potential for using fixed wireless connections to supplant local fiber-to-the-home networks, Schmidt noted that his team had met at length about the issue only the day before.
"The simple answer," said Schmidt, "is that there appear to be wireless solutions that are point to point that are inexpensive now because of the improvements in semiconductors; that these point to point solutions are cheaper than digging up your garden and... can carry the gigabit performance."
Schmidt went on to say that miniaturization and beam targeting are at the heart of cheaper, higher-performing wireless technology, and while he didn't announce any specific news, he did allude to the fact that he believes fixed wireless could have a big impact on Google Fiber's (and parent company Alphabet's) business. (See also Gigabites: Facebook vs. Google in Gig City Race.)
Currently, Google Fiber is only live in five cities. That's considered very slow progress for an initiative that launched its first trial back in 2011, but it has been enough to act as a catalyst to the industry and other cities, many of which are now pursuing their own gigabit goals. If Google Fiber could speed up deployments with a combination of wired and wireless technology, it would have even more opportunity to disrupt the status quo. (See also US Cellular Joins Google's Project Fi.)
The second part of the equation is Alphabet's ability to drive new business from investments in network infrastructure. Already the company has every incentive to get and keep people connected because connectivity supports content and online applications, which in turn support advertising. And advertising still makes up 90% of Alphabet's revenue.
Beyond the current financial structure, however, there's also the possibility of developing new advertising channels and even new revenue-generating services in conjunction with the build-out of new networks.
As CFO Ruth Porat put it at the shareholder meeting, "Every time we go into a city, we're working closely with cities, and I think that partnership is another part of it. So we have the approach to the city and the business model on the one hand, and then the technology on the other," said Porat.
Alphabet doesn't only want to work with cities on getting right-of-way and TV franchise agreements. It wants to work with cities on solving problems with technology; on making cities smarter.
"We have a group under Alphabet called Sidewalk Labs, and they've decided to rethink the way cities work," noted Schmidt. "We think we can apply new technologies of one kind or another in conjunction with, in this case, a group called Transportation for America, to do this. And in fact there are now 'best cities' initiatives which we're competing in, where we're educating people on what is possible using the merger of digital technology and the problems that have bedeviled cities for a very long time."
Schmidt was referring to Alphabet's participation in the Smart City Challenge, which is being financed with up to $40 million in pledged funding from the federal government. Alphabet, via Sidewalk Labs, has promised to provide the winner of the challenge free access to a new transportation coordination platform called Flow that it's helping to develop. Flow will use "analytics and messaging to help cities work with citizens to increase the efficiency of road, parking, and transit use, improving access to mobility for all."
If the Flow platform is successful, it should lead to a new ecosystem of applications, which in turn could ultimately mean more revenue for Alphabet.
There are many other companies pursuing the smart city holy grail. AT&T Inc. (NYSE: T) just announced today that it's also joining the Smart City Challenge as a sponsor, and Verizon Communications Inc. (NYSE: VZ)'s entry into the Boston market with new fiber deployments is predicated on the agreement that the telco will also conduct a smart city trial to address local traffic issues. (See Verizon Throws Surprise FiOS Party for Boston.)
But it will be interesting to watch as Alphabet ramps up its commitment to the smart city space... and particularly as it creates new challenges for incumbent network operators.
— Mari Silbey, Senior Editor, Cable/Video, Light Reading