Google Fiber’s Real Upside for Internet Access and HD TV Efforts

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Google Inc. (NASDAQ: GOOG) dominates Internet search. When comScore (NASDAQ: SCOR) posted its October U.S. search market numbers, Google had a whopping 66.7% of the total market share. What if Google decides that its Kansas City offering called Google Fiber becomes a nationwide ambition? The company could become a major contender in Internet access and HD TV programming and content. The question is whether Google decides to go after more markets than Kansas City, even as the market is just up and running, still only expanding locally.

The high-end service offered is for one low price of $120 per month, which includes all the necessary gear and set-up, and the households can as many as 200 HD channels and Internet that runs at 1 gigabit (Gb) per second. That is close to 100 times faster than today’s average Internet speeds (as of the end of 2011), so fast that a full-length HD movie could be downloaded in about 30 seconds without interruption. In a world where more and more households are streaming and storing content from providers like Netflix Inc. (NASDAQ: NFLX), this could be a huge game changer.

There are approximately 118 million U.S. households. Nielson’s local television research found that there is 114.7 million TV households in its measurement. So basically almost every household in the United States has some form of TV access, through cable, satellite, carrier fiber or off-the-air antenna. Cable companies like Comcast Corp. (NASDAQ: CMCSA) and Time Warner Cable Inc. (NYSE: TWC) dominate cable delivery. Some 84% of U.S. households, or about 92 million homes, have cable. According to the National Cable and Television Association, total cable revenues for 2011 were $95.6 billion dollars. These are combined revenues from cable video, digital video, high-speed Internet and cable phone. While cable delivery dominates satellite TV from DirecTV (NASDAQ: DTV) and Dish Network Corp. (NASDAQ: DISH), the combined revenue for the two companies is still expected to be almost $44 billion in 2012.

With the market offering billions on billions more, Google could really decide to make strides here to go capture more for its shareholders. Build out estimates for the Google Fiber nationwide network are as high as $140 billion dollars. If Google were to capture only a third of the annual revenue from cable and satellite, they could generate more than $46 billion per year.

Both of the major U.S. telephone and wireless carriers are also in the market. AT&T Inc. (NYSE: T) offers its U-verse TV package, which has 6.8 million customers, while Verizon Communications Inc. (NYSE: VZ) offers its FiOS TV, with about 4.4 million customers. Both companies tout their fiber-to-the-premises as a major selling point. The majority of the customers for both carriers have bundled packages that average between $150 and $175 per month. So why would American households switch to Google Fiber? Price and speed, simple enough.

At $120 per month, the Google Fiber package is considerably lower than any of the other providers’ “premium” packages. Younger consumers who tend to stream movies and shows are also avid online gamers, and would undoubtedly be drawn to the incredible Internet speed. Google offers an Internet-only package for $70 per month. The combination of 200 HD channels, incredibly fast Internet and two terabytes of storage capacity all controlled by the Nexus 7 Google tablet, and installation at no charge. That could change the minds of many new customers.

Who stands to lose if Google expands across the United States?

It would seem that all the current players stand to lose market share. Satellite providers may fare somewhat better, as they are often the only provider to rural areas. On the other hand, local or regional cable operators and smaller Internet service providers could suffer as well if this truly became a nationwide effort.

Cablevision Systems Corp. (NYSE: CVC) predominantly serves the Tri-State area of New York, New Jersey, Connecticut and parts of Pennsylvania. Would their lack of a national footprint be a disadvantage despite their impressive corporate portfolio? Could the same be said for Charter Communications Inc. (NASDAQ: CHTR). In and out of bankruptcy over the years and plagued with very poor customer satisfaction ratings, they could also be a Google Fiber victim. AOL Inc. (NYSE: AOL) could be vulnerable, and ditto for EarthLink Inc. (NASDAQ: ELNK).

So, why could Google win here? Simple enough: power and money. Google has the ability to fund such an ambitious nationwide project. With almost $50 billion in cash and the ability to place an enormous debt offering if it chooses to do so. The company could easily fight the established leaders and it has obvious name recognition. You do not search for something on the Internet, you “Google” it. The Google name is ubiquitous. That kind of branding can make a difference in a project so ambitious.

Lee Jackson