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Comment by tc | Hacker News Reader

This message is meant for exactly two groups: 1) Google, 2) other municipalities.

AT&T is telling Google that they'll play in any market Google commits to and drive the margins out of it. They want Google to stop doing this, and they're hoping to make Google question its financial model for this capital outlay. (I doubt it will faze Google.)

AT&T is warning other municipalities to not cut Google any sweetheart deals that they're not willing to extend to AT&T. This is a potent message for municipalities that are sitting pretty on financial or other perks they've extracted from AT&T or other telecoms. AT&T is warning them the gravy train stops when they let in Google.

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Why, it's a clear message to the public as well, which states: AT&T is only ready to improve their service when threatened with competition. Otherwise forget it. At least one has to give them a credit that they had guts to admit it.

Yep.

"This expanded investment is not expected to materially alter AT&T’s anticipated 2013 capital expenditures."

So, they've had the capability for a while now. They just didn't see any reason to bother with the hassle of deploying a newer technology when they could just keep maintaining U-verse over twisted pair, even if capex stayed the same for either choice. Which is an interesting choice.

Interesting how the economic impact of this isn't discussed. They very well could've done this years ago, and given the economy a boost. By not doing this, they hold back the American economy.

As a non-American, I can only imagine the class-action lawsuits...

Not only that, but the telcos were given massive federal subsidies which they were supposed to use to expand high speed internet connectivity and they never really followed through on their end of the deal.

EDIT:

http://www.pbs.org/cringely/pulpit/2007/pulpit_20070810_0026...

To be fair, T's capex expenditures are massive, something like $5 billion per quarter or more. So to 'materially alter', it'd have to be like $3 billion a year or more.

Indeed. And there is the possibility that they just won't move on anything until FY 2014 or later. Though commandar brings up the point that even if they didn't have the capital themselves to deploy fiber, we _did_ give them the capital once and they squandered it.

And the correct response should be those communities throwing off any constraints on people "competing" with the communications infrastructure.

For some companies, it is important to keep a good public image, and for some it's not. But it's always done to maximize their profits, not because of good intentions.

For example: Valve, Google and Facebook all try to be "good," since their target audience are often young, technology-oriented people who care about how good the company is.

But for some corporations, it doesn't matter what their users think. Majority of AT&T customers are average people, who know nothing about ISPs and slow Internet. They just want their "Skype-box" to work.

It only doesn't matter to some, when they managed to get a monopolistic control over the market (like happens to be the case with ISPs). I'm sure many average users are well aware about how bad is a slow Internet or a broken customer service.

Unfortunately, the public doesn't have many competitive alternatives for high-speed internet, so AT&T probably doesn't care.

My first thoughts exactly when I saw this post. Well actually my first thought was "Doesn't OP mean Google is laying fiber in Austin? Ooooooohh I get it...". I'm happy about this -- it means that Google's mission is coming along nicely. Screw AT&T.

Pretty delightful message for Google, actually.

Google never dreamed of becoming a telecom monopolist. It just wants faster, cheaper internet for everyone. Google wants more people online, more people googling, more people clicking on ads.

So AT&T's announcement? Exactly what Google wants. Well, this, or AT&T announcing it will sit on its hands while Google patiently erodes their subscriber base. Either one, really, is a win for Google. To use a chess analogy, AT&T (and friends) have been "forked."

I think you are correct that Google wants everyone to have fast and high bandwidth internet connections as it benefits their core search advertising business. Google Fiber is just one of many efforts including Chrome/V8 and Spdy.

However going head to head with AT&T in Austin will NOT help this effort. AT&T is signaling Google and, more importantly, other potential gigabit internet service providers that it will compete with you and thus reduce your margins in a very capital intensive (i.e. risky) business. Anybody considers something similar in another city will think again.

Does anyone think the timing is a coincidence? If not why is AT&T doing this?

I would speculate that AT&T cannot handle any more capital spending and the debt it would require. They can barely keep up with the spending on mobile and their landline business is dying. Internet service over their existing (i.e. paid for) infrastructure has got to be their best business (certainly on return on capital). Google Fibre does them no good.

> However going head to head with AT&T in Austin will not help this effort. AT&T is signaling Google and, more importantly, other potential gigabit internet service providers that it will compete with you and thus reduce your margins in a very capital intensive (i.e. risky) business.

Lots of firms with an established role in a market "signal" things like that when a competitor is heading to market with a new product ahead of them. Fewer of them follow through effectively.

The situation is very special in capital intensive industries like this. When you have to invest and thus borrow huge sums of money to create a business everyone involved is keenly aware that competition can put the entire investment at risk. Many times in the past firms and whole industries have gone bankrupt (e.g. cars, airplanes, steel).

This is why capital intensive industries typically are dominated by a small number, often just one, of big firms. This has been well studied in a branch of economics called Industrial Organization.

A standard reference is Sutton's "Sunk Costs and Market Structure: Price Competition, Advertising, and the Evolution of Concentration" (2007) http://www.amazon.com/Sunk-Costs-Market-Structure-Concentrat...

> The situation is very special in capital intensive industries like this.

Sure, if Google didn't have the money lined up for Austin when they announced Austin, AT&T's signalling could jeopardize it, but, because its such a capital intensive industry (and because its not Google Fiber's first time around the block, either), that's unlikely.

What would jeopardize Google Fiber's longer term effort is if AT&T actually delivered something in Austin that made Google Fiber there unprofitable (and even then, it really only threatens Google Fiber if Google doesn't perceivea greater benefit to its other services from getting widespread affordable 1Gbps service to consumers than the loss from continuing to expand Google Fiber.)

> This is why capital intensive industries typically are dominated by a small number, often just one, of big firms.

Yes, because its hard for anyone to get the capital to make the outlay to compete, regardless of "signalling" by existing market players. Usually, anyone who has the capital has a less-risky way to invest it than trying to break into a capital-intensive industry with established players.

However, if a big player in another major industry with enormous resources to which the actions of the established players in the capital-intensive industry are a risk (as is the case with Google vis-a-vis the telecoms) is involved, there is a different story, as that player's interest in the industry extends beyond the gains that can be made in that industry. (Actually, that doesn't change the long-term trend of concentration, it just makes it more likely that the trend will be bucked in the short-term by the introduction of a new player.)

> AT&T is signaling ... it will... reduce your margins

Yeah, that's what I took as your original point. I just think "reduced margins" is a completely empty threat to Google.

Say I sell widgets. Now, you sell widgets too, but your primary revenue stream is driven by "widget penetration," ie, the total number of widgets owned and used.

We have a price war. Who wins?

You do, because people having widgets is valuable to you, so you just give away widgets at cost. No, wait, you go farther. You split the increased revenue from your primary stream with your widget customers, you give people widgets UNDER COST.

And I'm sitting here, giving my widgets away for nothing, thinking, "He's going to rue the day he price warred with me. I have deeper pockets, so I can lose money longer."

But you're not losing money, you're increasing your revenues every day. My pockets can be 100 times deeper than yours, and I will still head, puzzled, straight to bankruptcy.

I mean, capital intensive, yeah, that'd matter for someone who didn't have cash to burn, but not Google.

Maybe this was where you were heading: No one can really join Google in this effort. Google cannot inspire a transformation then step back and let it happen. It now has to see it through, because the economics are unique to it, they don't apply to Joe Schmoe's neighborhood ISP. That might be true.

I don't think Google's strategy is to build these networks themselves but to demonstrate consumer demand and thus entice others to build them for them.

I can't imagine they actually want to spend tens, if not hundreds, of billions to wire even most US urban consumers with gigabit connections. This would radically change the nature of Google's financial position. Yes they would gain on search advertising but could it possibly justify the cost?

AT&T is seeking to demonstrate how competitive and thus unprofitable this business will be making it very difficult to justify the costs or even obtain financing. Sadly while this is good news for Austin it is probably bad new for everybody else hoping for a gigabit connection.

Agreed. On your first point, I particularly agree that it won't faze Google. While I'm sure they want every business unit to be a money-maker, I don't think Google is worried about the margins getting squeezed. I bet they've figured the value of just having more people on an unmetered high speed connection and might even be willing to lose money on the access. And I'd be particularly surprised if AT&T has a bigger appetite for price wars than Google :)

I agree with this. If there was any money in the pipes we wouldn't see nearly as many mergers of broadband and content companies. We also wouldn't see content companies getting into broadband either. The nice thing about Google is that their interests as you said are mutually beneficial here. E.g. faster broadband means more money for Google via ad sales. This isn't true with Comcast or other carriers.

Yeah, if AT&T is trying to play some kind of "chicken game" with Google, they will lose, because Google doesn't care that much about the profits as they do about dramatically increasing the competition in the ISP market. In fact, higher valuer/buck is Google's goal in all of this. AT&T is falling right in Google's "trap", sort of speak (which is a good thing for us).

While Google may indeed have some thoughts that with all this popularity and head-start they could become a major ISP in US, their primary and original goal was exactly to get other companies to start offering Gigabit and affordable fiber connections, with no other limits or caps.

Does it mean Google will attempt to become a mobile provider as well? At least they could bring some sense into the market by providing a service with no caps.

I think it's pretty clear that Google isn't interested in being a telecom themselves, but have been making moves to try to push for the telecom industry to get their collective act together.

They were instrumental, for example, in getting the FCC to force VZW to treat LTE service as a dumb pipe as a condition of the spectrum sale.

And while much has been made of T-Mobile recently going contract-free, Google was pushing that with the original Nexus years ago, and I had a no-contract, un-subsidized G2 through T-Mobile in... 2010?

Google already owns a ton of dark fiber, so it kind of makes sense for them to threaten the telecoms with competition to push things along. Building out a mobile network is a much bigger undertaking, so their pushes there have been -- and I suspect will continue to be -- a bit more behind the scenes in nature.

It's not just dumb pipes (ED: dark fiber) they also have YouTube which is ~15% of downstream traffic which they would be happy to stream inside there private network even with peering arrangements.

I was referring to the sale of the 700MHz C Block LTE band.

One of the conditions of the spectrum license was that VZW couldn't restrict what devices were allowed on the network and that they couldn't restrict what applications ran over the network.

VZW got hit with a $1.25M fine by the FCC last year for blocking tethering apps on LTE.

http://www.theverge.com/2012/7/31/3207193/verizon-fcc-tether...

> Does it mean Google will attempt to become a mobile provider as well?

Google's been heavily involved in efforts centered around the use of spectrum "white spaces" for broadband, including for mobile devices; they aren't likely to become a traditional mobile provider, but...

>Yeah, if AT&T is trying to play some kind of "chicken game" with Google, they will lose, because Google doesn't care that much about the profits as they do about dramatically increasing the competition in the ISP market.

The interesting thing is that AT&T's response is not going to help them, but the thing they actually could do is what Google would like them to do -- install gigabit fiber in other cities, that Google isn't in yet.

If Google installs fiber in a city and AT&T doesn't, that city belongs to Google. AT&T is going to lose the large majority of their customers in that city if they don't upgrade their network in response. But if AT&T does install gigabit fiber in that city, now they're in the position of having to make a large capital investment only to enter an aggressive price war. In either case, for that city, AT&T is screwed.

However, suppose AT&T decides instead to install gigabit fiber in, say, Chicago, or Hartford. Preemptively. Those cities immediately fall off the short list for the next Google Fiber rollout, because why put fiber in a city that already has it when there are so many that don't? So now AT&T owns the market in that city. They still had to make the capital investment, but at least now they stave off the subsequent price war. And if they do it in all the cities in their service area which would be good candidates, the next Google Fiber city ends up being in Verizon territory -- unless Verizon et al all do the same thing, in which case Google may just bow out having accomplished their goal.

This is exactly the reason Google implemented fiber in the first place. Their intent is not to necessarily dominate the broadband networks, but simply to bring back competition to these oligopolies.

Now if only San Francisco could get some decent internet! I've been hoping for monkeybrains to expand further from the Mission so I can drop Comcast.

I think this is the kind of behavior Google wants from competitors. Ultimately companies like Google stand to make the most profit from an America with faster internet connections, and the slow overpriced connections are really making cloud related technologies like Google Drive lackluster.

Not sure if the message is that clear. If this were their stance they should have announced multiple cities today instead of piggy backing on the Google in Austin announcement.

> AT&T is warning them the gravy train stops when they let in Google.

The AT&T gravy train just gets replaced with the Google gravy hyper-rail.

If this is a message to Google, then AT&T must be pretty stupid. It seems obvious that Google's goal is to get high-speed internet to people, because Google makes money when people use the internet, and they don't care who delivers the connectivity. Google is only doing it themselves because ISPs have not stepped up to the plate.

Theodore Vail would be proud.

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