Financial pressure from higher-ups

Like many of its siblings in the broader Alphabet family, Google Fiber is likely feeling the heat from top executives who are trying to show investors that their money is being well spent.

Remember when Google restructured itself last year? The move effectively divided Google into two parts: the one that makes a lot of money — the core business, which includes search, YouTube and many of the other consumer-facing services you think of when you think “Google”; and the one that spends a lot of money, which includes Fiber, Nest and its famous moonshot lab, X.

AD

AD

This second half of the business has been under intense pressure to demonstrate results. That's why Astro Teller, the head of X, had to write a blog post essentially defending his department's reason to exist. It's why Google sought to spin off Boston Dynamics, which was reportedly spending too much time and money building products nobody would buy. And it's partly why there has been controversy surrounding Nest, the smart-thermostat maker.

Although chief financial officer Ruth Porat cited Fiber as one of Alphabet's top performers in one of the first earnings calls after the restructuring, it seems as though no part of Alphabet has been able to escape the deeper financial scrutiny that came along with it.

Not enough demand

AD

Just like Google Glass — the company's ill-fated attempt to build an augmented-reality visor — Google Fiber may be just a little ahead of its time. The thing about Fiber and businesses like it is that most consumers simply can't find a use for that much bandwidth yet. Google Fiber provides gigabit connectivity, which is orders of magnitude faster than what many Americans get in their homes today.

AD

Unless you're a corporation that operates a data center or runs a cloud computing business, you probably don't need a gigabit connection. As Vox points out, even the most data-hungry applications — ahem, Netflix — require only a 25 megabits-per-second connection at the most. That's 1/40th the amount of bandwidth a Google Fiber connection provides.

Our consumption of broadband is undoubtedly going to increase as we connect more devices to the Internet and those devices communicate in more sophisticated ways. But for now, Fiber is reportedly missing its subscriber goals, indicating there may not be enough demand for that level of service.

AD

Big incumbents made Google's job harder

Google had an unenviable task in many of its chosen cities: It had to compete with large, established broadband providers who were already there or could benefit from regulations that raised the bar for new entrants.

AD

To counter the problem, Google tried something novel. It got cities to compete for Google's favor. The company basically said, “We'll come to your city if you complete this checklist of tasks that will make our lives easier.” If a city proved itself worthy of Google Fiber — by easing the permitting or construction process, for example — then it increased the likelihood that it would be next on the list to receive Google's high-speed service.

AD

This arrangement sometimes resulted in cities doing things that the big incumbents didn't like. Louisville, Ky., for example, approved a city ordinance that would have let Google move cables around on utility poles that it didn't own. AT&T sued, saying the move was illegal and violated federal rules. Google responded by accusing AT&T of hindering competition. In Nashville, AT&T and Comcast have sued to defeat a similar measure.

These fights are part of a larger battle among industry titans to determine how the market for broadband functions. Under one approach, it's much harder for companies like Google Fiber to get started. Under another approach, it gets easier. The problem for Google is that engaging in these fights can be a costly distraction beyond the substantial expense of laying down high-speed networks.

AD

Providing bundled TV is expensive

AD

There was another major cost Google had to account for when offering its Fiber service. Americans love their double- or triple-play bundles, which reduce the cost of buying Internet from traditional providers. To get customers to switch to Fiber, Google had to offer a compelling TV service of its own. And that meant doing all the same things a regular cable company does, such as pay channels like ESPN or HBO for their content.

The cost of acquiring video content was “the single biggest impediment” to Google Fiber's wider rollout, a top Google Fiber executive, Milo Medin, told an audience in 2014. Compared with more established service providers, Medin said, Google was paying twice as much for video rights — a cost that couldn't be avoided.

Wireless broadband is the future

AD

AD

Even as Google Fiber pays lots of money to lay down cables and secure access to TV programming, a different type of technology is coming down the pike: wireless fiber. In some respects, you can think of wireless fiber as similar to the 4G LTE you get on your cellphone — it's a wireless way of getting data. But in other ways, it's a totally different ballgame. Verizon's version claims to be 50 to 100 times faster than LTE. AT&T is working on something called AirGig, which envisions a network of wireless hotspots mounted on utility poles that constantly beam out high-speed wireless signals.

There are signs that Google is moving in this direction, too. In June, it acquired Webpass, a provider of wireless broadband. Other acquisitions support this theory. And in its announcement Tuesday, Google Fiber said it would be looking at “new technology and deployment methods to make superfast Internet more abundant than it is today.”