AT&T (NYSE:T) is not rolling over in response to a competitive threat from Google (NASDAQ:GOOG) as the search giant launches a high-performance fiber network. Google, claiming that it gives consumers speeds up to 100x faster than conventional broadband internet access, has been offering service in Kansas City, Kansas; Austin, Texas; and Provo, Utah. There is an enormity of tasks and requirements in order to make the program a success, including exorbitant capital needs, infrastructure, and negotiations to obtain governments' approval. Long-term viability is uncertain. It does appear that competition is helping the marketplace, as AT&T offers improved products on its same budget.
In Kansas City, Google Fiber is a residential-only service; however, plans are to expand to hospitals, schools and public libraries soon. A recent Sanford Bernstein survey has found that high percentages of residents in select neighborhoods are paying $70 per month for stand alone, ultra-fast Internet connectivity to the "Fiberhood." Perhaps due to past disappointing customer service experiences, most clients are recommending the service. Also, signup rates are approximately 75% in medium to high income purlieus, and forecast to result in 50% of residents paying for Google's connectivity and another 10% enjoying a free package.
Rival offering of superlatively fast internet access, particularly in combination with television programming, is a direct threat to existing providers that bundle services. There is no way around it. If things proceed as it appears that they may, effects should be apparent several years in the future.
Yet, according to Sanford Bernstein, which is skeptical about the plan's scalability, Google "could spend $11 billion on hookups and only reach 15% of the country."
Meanwhile AT&T is active. It has announced a plan to bring "Blazing fast" Internet service to Kansas City businesses. It also intends to launch U-Verse with GigaPower to 100 domestic markets, including virtually all locations where Google is known to be considering market entry. Notably, there is an Internet-only option to Austin residents at a subscription cost of $70 per month.
North Carolina is the only state that is home to two separate metro areas that Google has been studying: Raleigh-Durham and Charlotte. Google's speeds currently reach 1 Gbps and its plans are to reach 10 Gbps. A recent Wall Street Journal article summarizes key considerations about AT&T's intent to offer speeds of up to 1 Gbps, or 10x faster than current speeds to North Carolina residents:
The planned effort…will be a combination of building out the network into new areas and upgrading in places where service is already offered. AT&T's U-verse is a fiber-based network, but typically uses copper wire to make the final connections to buildings.
In upgrading to the higher speeds, AT&T is replacing those copper portions with fiber and, like in Austin, AT&T will only offer the high-speed service where there is demand…A&T plans to offer the service in Carrboro, Cary, Chapel Hill, Durham, Raleigh and Winston-Salem.
Charlotte is also reported to be the recipient of upgraded AT&T service (Source: 100 markets link above). Despite improvements that might not be up to speed, there is potential comfort to shareholders as the telecommunications giant says the upgrades will fall under planned spending and do not affect its 2014 budget.
There is some data indicating that Google Fiber is enjoying success in terms of customer signups. Even if the corporation's plan runs into insurmountable difficulties, as Sanford Bernstein implies, AT&T is responding with improved offerings to consumers in applicable markets and other locations as well. It appears to be a clear example of competition helping the marketplace. And some indicate happiness as Google's customers.
Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in T over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.