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How the 'Threat' of Google Fiber Could Mean We All Pay More for Cable


Comcast's chief cites a tiny experiment as an existential danger.

Try to be happy for the people of Shawnee, Kansas. The town's weekly newspaper, The Shawnee Dispatch recently reported that the building project underway behind a local fire house is one of two fiber huts that Google (NASDAQ:GOOG) is constructing in the area.

The hut will house the glass fibers that transmit signals back and forth between the Internet and electronic devices in and around Shawnee.

The project is elaborate. Telecom "cabinets" also have to be installed around the town, and a fiber strand has to be run from one of them to each prospective subscriber's home.

Once that's done, subscribers can expect to pay $120 per month for Internet service that is about 100 times faster than the average broadband customer gets in the US, plus more than 200 high-definition television channels.

Internet service alone is expected to be $70 per month.

Or, a customer can get free Internet service, limited to one home device, after paying a one-time fee of $300 for installation of the fiber.

It's not as good as the deal that the French get. In France, as of late 2012, the equivalent of $38 per month gets you Internet speeds 10 to 20 times faster than in the US, plus global telephone calling at no additional charge.

But it's almost certainly a lot better than what you're getting now.

Unfortunately, you have to move to Provo, Utah, Kansas City, Missouri, or Austin, Texas, to get Google Fiber in the near future. (Shawnee wins by being located close to Kansas City.)

For many Americans, the speed of their current Internet service probably seems adequate, and is certainly better than it was just a few years ago.

The other crucial difference between Google's service and those offered by the big cable companies is one of choice.

Google, which after all is an Internet company, offers consumers the choice of Internet and television service, or just Internet service.

In the US, the average "triple-play package" for cable television, Internet service, and land-line phone service was $160 per month, as of late 2012.

The cable companies have made it difficult, and even pointless, to choose anything less.

That is the "cord-cutter's" dilemma. Americans who are not addicted to live sports programming, much of which is available only on cable, would settle for pretty good Internet service, plus a subscription to Netflix (NASDAQ:NFLX) or Amazon (NASDAQ:AMZN) Prime, and maybe a nice old-timey antenna for the broadcast networks.

And then what do they do for Internet service?

Why, they buy it from their local cable company. There are alternatives for some consumers in some areas -- DSL, satellite, wireless Internet -- but for most of us, cable has the marketing power and remains the safe choice.

Comcast (NASDAQ:CMCSA) currently has a bewildering variety of deals for Internet service, ranging from $29.99 (for six months only) to $114.95 per month. Internet speeds vary widely. Some deals come with "basic" cable or HBO only.

But the best deals are good for one year or less, are for new customers only, and come with fine print for the usual taxes and mysterious fees. These may include something called a "regulatory recovery fee," a "broadcast TV fee," and "premium" installation charges. The real cost to the consumer is not displayed until a commitment is made.

Other consumers in other regions are getting somewhat better deals. A writer for The Buffalo News who covered his own cord-cutting experiment pays Time Warner Cable (NYSE:TWC) $34.99 per month for Internet only.

Good luck keeping that deal, Buffalo. You'll soon be Comcast customers, too.

This week, Comcast CEO Brian Roberts cited Google Fiber as an example of the kind of competitive threat that can be met only with big scale, like the proposed merger of Comcast and Time Warner Cable.

Google Fiber may reach a market penetration of about 2% next year.

Comcast plans to sell more than a million subscribers in order to keep the market reach of the combined companies at 30%, the informal limit seen as tolerable for regulatory approval.

Competition? We should be so lucky.

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No positions in stocks mentioned.
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