CNET/Marguerite Reardon

KANSAS CITY -- Google is in it to win it when it comes to building fiber broadband networks. Despite speculation to the contrary, Google sees its Google Fiber broadband business as a moneymaker, and not just an overpriced test network.

And it's very likely that the company will continue expanding the service into other cities willing to partner to keep costs down.

Speaking at the Fiber-to-the-Home Council meeting here late Wednesday, Milo Medin, vice president of access services for Google, told an audience of city planners, engineers, and city mayors that Google is not just building a testbed for new Google services in Kansas City with its Google Fiber project, but an actual business that the company hopes will one day be profitable.

CNET/Marguerite Reardon

"We expect to make money from Google Fiber," he said. "This is a great business to be in."

Since it announced its plan to build a gigabit-speed fiber broadband network in 2010, there's been a lot of speculation about why Google is getting into this capital intensive business. The network in Kansas City, which delivers 1Gbps in downloads and uploads to users and also comes with a bundled TV service that operates entirely over Google's fiber network, was first seen as an experimental network the Internet giant was building to test new services and advertising models.

Others have wondered if Google's network was just a way to push existing cable and telephone companies to offer higher speed Internet services themselves. And of course, the perception was that the deep-pocketed tech giant could afford to throw money away on such a project and simply write it off as research and development.

Medin admitted that when the idea of Google Fiber project was first conceived, even Google didn't see it as a viable business. He said the idea came when Google was talking to the Federal Communications Commission about the National Broadband Plan, which was presented to Congress in 2010. A team inside Google had decided to recommend to the FCC that a "gigabit bill" be introduced in Congress that would include suggestions for ways to build and fund new and faster broadband networks.

"But then someone on the management team said, 'If we really think this is important, why whine to the government, when we can do it ourselves,'" he said.

And this how the Google Fiber project was born. The plan was to let cities know that Google wanted to build a 1-gigabit-per-second broadband network and then look for cities interested in partnering on building the network.

"We thought a handful of cities would say they were interested," Medin said. "Then we saw that 1,100 communities replied. No one at the time thought there was a real business here. But that changed when we saw the interest."

Google had no intention of building another me-too broadband network. In fulfilling the promise of the National Broadband Plan, the company also wanted to push the envelope in terms of speed and affordability. This is why Google is building a network that offers service that can be as much as 100 times faster than what is typically available from traditional cable and telephone company broadband providers at a much lower cost.

Google offers only two tiers of service for its residential broadband service: a 1Gbps service for $70 a month and a 5Mbps service that is free with a $300 fiber installation fee that can be paid for over two years. While the 1Gbps service is slightly higher than the $40 to $50 most consumers pay each month for broadband, it's still a better value.

Those other services priced at that amount generally only offer 5Mbps to 10Mbps of download speeds and even slower upload connections. Providers that are offering 100Mbps of broadband service are charging $300 or $400 a month. At $70 for 1Gbps, Google Fiber is simply a better value. It offers 10 times the capacity for less than a third or a quarter of the cost. Even providers that can offer 1Gbps of service are charging over $1,000 a month for that service.

While it's true that most residential users don't need an entire 1Gbps of service today, Medin said they will in the future.

"We're trying to build a business for the next 10 years, not the last 10 years," he said. "I remember a time when people thought that they'd never use 5Mbps of service. Now you do that streaming a couple of movies."

How can Google make Google Fiber profitable?

But the big question remains: How will Google be able to sell this faster service at lower prices and still make money?

Google hasn't disclosed any financial details about its deployment in Kansas City. Medin admits that money the company spends on Google Fiber today is immaterial compared to Google's overall financials.

CNET/Marguerite Reardon

But Medin did offer some insight into how Google will eventually be able to make money from this deployment and other fiber cities in the future. The key, he said, is keeping costs of deploying the network as low as possible. Contrary to what other infrastructure providers have done in the past, Medin said that Google has not asked for any funds from the government to subsidize the cost of its network nor has it sought out attractive tax breaks.

Instead, the company has partnered with cities to make the process of building such a network less expensive and less time consuming.

"Asking for tax breaks would be too easy," he said. "So we are asking cities to do something much harder."

Specifically, Google asked the city of Kansas City to dedicate construction inspectors to the Google Fiber project so that the inspections the city requires on a regular basis could be done quickly, which saves Google time and money during the construction phase. It also asked to co-locate the fiber with any city owned conduit, so that it didn't have to tear up streets unnecessarily. And the company worked with utilities to make sure that new poles that go up offer space for new fiber connections to be strung.

"A city committed to being gigabit-friendly can make a difference," he said. "All of this can add up to real savings."

Another major change Google made in its deployment plan compared to what other broadband providers have done in the past is that it is only building to communities or "fiberhoods" where there is strong demand for the service. Instead of building the network everywhere and then marketing to customers and signing them up one by one, Google requires that each community meet a certain threshold of interest before it builds in that neighborhood. And when it does lay fiber in a certain "fiberhood," it does it in waves. If a resident doesn't sign up during the "rally" period, then he will have to wait for subsequent rallies if he decides he wants Fiber at a later time.

"Instead of deciding where to build the fiber and marketing to customers one by one, we let consumers tell us where we should deploy," Medin explained.

He went onto explain how installing fiber to customers in one wave can be very efficient, since installers can be redirected more easily, again saving time and money. What's more, customers don't have to wait around all day for installations, which improves customer relations.

"We can say we'll be there at 10:30 a.m. And we can do it," he said. "Users really like this."

But he warned that once Google completes one wave of installation in a particular fiberhood, it's done. And the company starts again in another fiberhood. The downside, of course, is that customers who don't sign up right away may lose out on the chance to get the service.

"If you miss out on that installation, we may not get back to you for a long time," he said.

In less populated and wealthier areas of Kansas City, Google set a threshold of 25 percent of residents signing up for service. In more dense areas, where it is cheaper to lay fiber, the threshold was at 5 percent. And in places where the cost of deploying fiber is somewhere in the middle, Google set a threshold of 10 percent of residents.

Google also established anchor tenants for its network in an effort to motivate communities to sign up for the service. It offered to connect schools, libraries, community centers, and hospitals for free to the service, but it required the surrounding community to still hit its established threshold of interest. This prompted a lot of community involvement from school PTAs and other community organizers, who were all interested in getting fiber to these public buildings. And these groups helped rally support from the rest of the community to sign up for service.

Google saw great success with this strategy, and out of the 202 communities the company had identified as possible "fiberhoods," it signed up 180 of them for the service.

TV is a key component

Building the network has not been without its challenges, Medin said. The biggest headache for Google thus far in deploying Google Fiber has been offering its TV service. While Google decided not to offer telephone service as part of a triple play because it was too costly and added little value to the package, Medin said a TV service was a must in attracting residential customers. But offering this service has also created the most challenges for the company and has also cost it the most money.

"TV was a stumbling block for us," he said. "But you simply can't sell a residential broadband service without a competitive TV product."

The problem that Google faced was that the company couldn't simply resell someone else's TV service, because, as Medin put it, "the other TV services available were pretty horrible."

Instead, Google had to build its own system for delivering TV over its IP fiber network. This meant building its own national video head-end and encoding the video itself. It also had to build all of the in-home set-top boxes and other hardware to offer service, including a router/set-top box and a 2 Terabyte storage device/digital video recorder that allows up to eight different shows to be recorded at once.

Google also had to get all the programming agreements that other traditional TV services offered. This required a lot of legal resources and involved a long, complicated process, he said. But the company managed to get through all this and now offers a service that includes all the "regular" TV channels that customers come to expect from a TV service. And it also offers Netflix and YouTube as built-in over-the-top TV options.

"Looking back this was an insane decision to build a new network and TV platform at the same time," he said. "But Google is known for doing insane things. And now we have a pretty good version of our 1.0 product. We will be adding new capabilities and features soon."

Another revolutionary thing that Google has done with respect to TV is that it has worked with Netflix, one of the most widely used over-the-top video streaming service providers, to connect to its regional CDN or content distribution network. This means that Google TV viewers who are streaming movies and TV shows from Netflix get that content from Netflix's local servers that may only be a few milliseconds away from their own homes rather than traversing a national network to access the content.

As a result, Google Fiber TV customers are able to watch Netflix videos in "Super HD." And indeed the quality of the streaming picture appears to be a much higher quality than what is available even in HD from other TV providers. I checked out the TV service at the Google Fiber space, where the company shows off the service to the public. And there is a noticeable difference in the quality of the video.

Google Fiber expansion

Google has been so pleased with the Kansas City deployment that it's looking to expand. Earlier this year, Google said it would soon offer its service in metro areas in Missouri and Kansas outside of Kansas City. And the company has also announced two more Google Fiber cities. It's building a network in Austin, Texas, and it has taken over the fiber network in Provo, Utah.

Medin didn't specifically name additional cities for Google Fiber, but he hinted that Google may look for other communities to expand its service. Still, he warned the only way Google would consider a particular city for deployment is if the conditions are right.

"In general we go where it's easy to build," he said. "If you make it hard for me to build and other places are easy, I will go elsewhere."

In response to a question from an audience member about why Google has not built a network in its home state of California, Medin was blunt. He said that Google would love to bring fiber and 1Gbps broadband speeds to its employees and other Californians. But he said that in general California has many challenges that would make it too costly to build a fiber network there.

He said he hopes that over time, the rules will change and California will become a more hospitable place for fiber networks.

"I have to tell you that it's really easy to build a network in Kansas City," he said, "It's easy in Missouri; it's easy in Kansas, and it's easy in Texas. Actions have consequences. I would love to find a way to make it work in California."