Google Fiber Considers Going Wireless after Unexpectedly Expensive Initial Rollouts
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Google Fiber Considers Going Wireless after Unexpectedly Expensive Initial Rollouts

The company has spent hundreds of millions of dollars to lay cables in only a few cities

August 16, 2016

Alphabet Inc., parent company of Google, is considering taking its high-speed internet business wireless after running into numerous snags while laying the fiber cables.

The Wall Street Journal (WSJ) is reporting that the company has spent hundreds of millions of dollars on the project, which aims to provide internet connections at speeds approximately 30 times faster than the national average. However, it has hit numerous stumbling blocks along the way, such as high costs and longer-than-anticipated installation times, and the service is still available only in six cities.

Alphabet's solution is twofold. First, it is suspending Fiber projects in San Jose and Portland while it attempts to figure out how to harness wireless technology to provide the service. Second, in an effort to speed up Fiber rollout while saving money, it is asking cities and power companies in other locations to build the networks themselves.

Although Google may not have expected to run into them, such snags are not unexpected to everyone.

"If you're in the telecommunications industry for 150 years, there are no surprises here," said Jonathan Reichental, chief technology officer for the city of Palo Alto, when speaking to WSJ. "But if you're a software company getting into the business for the first time, this is a completely new world."

This is the latest in a series of gaffes Alphabet has made over the past couple of years. It halted production of its first Google Glass prototype in 2015 amid an outcry of concerns over privacy and security, and it is selling off Boston Dynamics, the robotics company it owned.

The biggest problem the company has run into on this project is how expensive it is. Fiber accounts for a large portion of the company's expenditures.

"The company doesn't disclose financial results for the Fiber unit, but consolidates them with other nonsearch businesses in its 'Other Bets' unit," reports WSJ. "That unit reported revenue of $185 million in the latest quarter, primarily driven by Fiber, home-automation firm Nest and life-sciences firm Verily, and an operating loss of $859 million. Fiber accounted for most of the unit's quarterly capital expenditures of $280 million."

Alphabet pays more than $500 in a one-time cost for each house reached by the network even though not every house actually subscribes to Fiber. It is taking a long-term view in terms of finances, however, hoping that the costs will eventually be made up with subscriber fees and ad clicks.

Currently the service costs $70 per month for subscribers who choose the fastest internet option, while television costs an additional $60 per month on top of that. Although Alphabet has not disclosed how many people subscribe to Fiber, in March research firm MoffettNathanson used figures reported to the U.S. Copyright Office to determine that, as of the previous December, the television service had 53,000 subscribers and the internet service likely even more.

Although Google Fiber has started construction in five cities, it is planning to move into twelve more cities over the next few years via wireless technology. Last month it purchased Webpass Inc., a company that transmits internet from an antenna connected to fiber cables to other antennas mounted on approximately 820 buildings in five different cities. Alphabet is also testing other wireless transmission methods, including antennas placed on street lamps and unspecified "experimental transmitters" that the company has applied to the Federal Communications Commission (FCC) for permission to test in 24 locations in the U.S. over the next two years.

A person familiar with Google Fiber's plans told WSJ that the company "is planning a system that would use fiber for the central network and antennas to connect each home wirelessly to that network." Other telecom companies such as AT&T and Verizon have shown interest in similar methods of deploying wireless technology to reach homes, but they have not put them into practice in many areas.

The company is also looking at other approaches as well. It is leasing preexisting but underused fiber in San Francisco and certain parts of Atlanta to connect whole apartment buildings instead of single-family homes. It agreed to come to Huntsville, Alabama, partially because the city agreed to build the fiber network itself. It is in discussions in Tampa with a power company to build a fiber network. And it has partnered with Irvine Co., a real estate company, to pre-install a network in new properties close to Irvine, California.

Alphabet's wireless focus is also intended to reduce the number of complications involved in constructing a fiber network with physical cables. The company received complaints in Kansas City from homeowners whose lawns were destroyed and whose gas lines were ruptured in the process of laying cables, and in Nashville and Louisville competitors Comcast, Charter, and AT&T are preventing Google from stringing cables on their utility poles.

One result of Google's entry into the telecom business has been to force its competitors into increasing their speeds, which in some markets has worked. However, though some analysts suspect that this was Alphabet's main goal, the company claims that Fiber is a legitimate business.

"We continue to see Fiber as a huge market opportunity," Chief Financial Officer Ruth Porat told investors according to WSJ. "We're being thoughtful and deliberate in our execution path."