Image via Flickr / wburris
An exciting thing happened in Austin on Tuesday—or at least it was exciting for Austin. The rest of the country is sort of screwed. AT&T announced that it would build a gigabit fiber network in the capital city, home of the University of Texas, an awesome music scene and the SXSW conferences. (It's mostly just the home to SXSW as far as nerds are concerned.)
The company cheered the city for opening its doors, closing down some regulatory measures and generally being accommodating to the company that wants to make it one of the fastest cities on the Internet. The new fiber network will give the citizens of Austin upload and download speeds up to one gigabit per second. The national average is just 7.2 megabits per second. In other words, Austin's Internet will be over ten times faster than the rest of the country. That means you could download a movie in about ten seconds. Just imagine how many indie rock songs they could download at that rate!
I'm kidding. But no, seriously. That's some fast Internet. Why can't everyone have Internet that fast? Because the wired telecommunications market sucks right now, that's why.
The term gigabit fiber network brings to mind Google Fiber, the search giant's recent foray into being an Internet service provider. The network is already up and running in Kansas City, and funnily enough, Austin is Google's next stop. Slate's Matt Yglesias draws attention to a line in AT&T's press release that mentions how the company expects to be "granted the same terms and conditions as Google" in terms of permits, licenses and so forth. This is a clear sign that they're expecting fierce competition from their deep-pocketed friend from Silicon Valley.
Things only get more complicated from here on out. Yglesias explains how, because of the high costs of building a network, it only makes sense for wired telecommunications companies to enter new markets they can monopolize, like Google's done in Kansas City. He continues:
At the monopoly price, the investment is worth making. At the competitive price, the investment isn't worth making. Normally the upshot is that you don't get the "second company". But it's also possible to pursue a pure spoiler strategy. AT&T won't make a profit building a copycat gigabit fiber network in Austin, but it may be able to ensure that Google doesn't make a profit either. That can work to deter Google from entering any other markets.
It's expensive to build these fiber networks and even more expensive to recruit new customers. Verizon has suspended the expansion of its FiOS network, for instance, and the fact that it cost an estimated $4,000 per household to build it is probably part of the reason why.
Google may or may not have the money to burn. New analysis published this week by TechCrunch shows that it cost Google about $84 million to build the Kansas City network, though that's probably not the final number since the company has to continue to invest in selling the service to new households and mainting it. To go nationwide (i.e. to 20 million homes across the counry) would cost Google a staggering $11 billion, the analyst estimated. For a company with less than $50 billion in cash on hand, that's an ambitious amount of money, and without the guarantee that it could make the money back by selling the service at monopoly prices, it's hard to imagine Google would want to spend it.
Maybe that's not the point, though. Maybe these companies don't actually care at all about building these fast networks right now. For a company like AT&T, building a gigabit Internet network makes it seem pretty cool. In a way, it serves as an expensive marketing campaign to show how AT&T's network is constantly improving and keeping up with the likes of a big, bad futuristic company like Google.
As for why Google's doing it? That's anybody's guess. Some people think it really is an experiment to see what can happen, and at less that $100 million, it's not a super expensive experiment. Plus it will yield all kinds of new data about how consumers use the Internet, data that Google's never had access to before. And Google loves data.
For you and me, it's a frustrating situation. Despite the fact that President Obama signed an executive order earlier this year to create a partnership that would bring gigabit speeds to households across the country, it will probably be years before we see this happen. Back when we were dealing with kilobits and dial-up modems, the dream of operating in gigabits and fiber optic networks seemed impossible. We now know that the feat of building the network is very much possible. Thanks to sneaky American capitalism, though, that dream remains distant for the vast majority of the country.