$28B for Google Fiber? I Doubt That

August 21st, 2012 by · 4 Comments

That’s what an article in Forbes says this morning, quoting a financial model put together by analysts critical of the effort. It seems crazy to think that Google has any intention of spending that much money on this demonstration, but the fact is that we still don’t really know how much skin they’re really putting into the game. 

The $28B number comes a model that sees Google eventually connecting an eventual 15 million households at $850-1,250 each plus overhead and operational costs. Of course, one must note that Kansas City and the surrounding metro area only has a total population of about 2 million, and probably half that many households. So this model certainly assumes that Google will expand its effort to dozens of cities across the country.

They’re obviously not going to do that if the economics are as bad as the Forbes article suggests, so there’s actually no chance that Google is going to blow $28B on the project. If the experiment doesn’t work, it surely won’t even leave Kansas City let alone hook up everyone there.

But it’s still an open question just how Google plans to make the economics more favorable on a large scale. Right now Google is even waiving its $300 construction fee for Gigabit service, which would have helped diffray the buildout costs a bit.  Clearly they must have a different per household cost number planned, I just which they’d tell us what it is.

If this is a trial designed to show the rest of the country how to make FTTH into reality, then hopefully they will share with us the real numbers.  We could use some real buildout cost numbers to play with, Google!

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Categories: FTTH

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4 Comments So Far

  • toddforthree says:

    rob i think there is a 200 million federal grant linked to fiber to premise type stuff. my guess is google is using some of that money for the kc venture

    i think gig-u is another project in that area

  • ANONYMOUS says:

    The mistake made by Forbes is misunderstanding the plant cost per passing versus plant cost per subscriber. If Google had 15 million subscribers, they would spend $20B.

    Our experience is FTTH buildout using aerial construction in a dense metro area of 150 homes per mile, assuming reasonable make-ready, the plant cost comes out to about $150 per home passed. (aerial = $22k/mile, UG = $35k/mile) Therefore, plant cost per sub at 25% take rate would be about $943. At 50% it would be $472 per sub. You have additional costs per sub of about $650-700 (ONT plus install). But I guess i’m not including the free nexus/ipad, which could add the additional $10B.

    At $70/month for Internet, I am assuming capex per sub of 1.5xEBITDA. Worst case 2x. If valuations of metro fiber are 4-10x, this is clearly good business and feasible.

    • Anonymous says:

      I don’t know what “dense metro” the UG cost are derived from, but that would be on the lower end of the price range for EF&I even without considering 1)make-ready costs which began to escalate in the late-90’s when power companies saw the opportunity to upgrade their OSP on the other guys dime and 2)ongoing pole attachment costs.
      Also, and this may be your point, the OSP cost for the route mile is almost totally a fixed cost, with the variable being customer equip/install costs, within that mile (which BTW we would include as OSP cost per route mile).
      Something else that should be included in the discussion on costs would be the rise in construction costs if Google (or XYZ) decided to go all-in on FTTx. Supply and demand could double OSP costs.

  • J says:

    Supposedly they have come up with some magic sauce to get the cost of the last mile down to a reasonable rate. It’s been said this is not for profit, yet to push the hands of the current players to create something competitive. I’ve heard they would use so called “dark fiber” bought up by various companies during the dot com bust.

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