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Summary:

Google’s fiber-to-the-home network may look like a loss leader for the search engine company, but its executive teams says it’s profitable. Here are the three ways Google has managed to cut the costs of building out a network and beat ISPs at their own game.

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Google launched its fiber-to-the-home gigabit network Thursday in Kansas City, KansasMo. and it wants everyone to know that this network isn’t a charity case. Several Google executives at the event were very clear that delivering gigabit internet access over fiber for $70 a month (and even free 5 Mbps fiber) is a business that will not only help advance Google’s consumer goals, but also make it money.

“There’s no sense selling a product at a loss,” said Google CFO Patrick Pichette (just look at Google’s Nexus 7 tablet). “But it’s not only about profits, it’s about changing the access costs.” His goal and Google’s goal is to bring the same efficiencies that have helped create cheaper, smaller and more powerful computers and create a cost and improvement curve for broadband access that resembles the curves for compute storage, as the chart below illustrates.

And Google may have a found a way to do that — both in terms of constructing and operating a fiber to the home network — by using its engineering team, existing consumer technologies such as QR codes and social engineering to influence how users sign up for access. Existing ISPs should take note — what Google has done here has fundamentally lowered the cost of building and deploying a network. It was cagey about if and when it would take its fiber-to-the-home show on the road, but if it does, it will pummel existing ISPs on price and service, have repercussions throughout the carrier equipment industry and entice a lot of end consumers to take on a more active role in marketing Google’s broadband.

How Google cuts costs

Delivering broadband is a capital-intensive business, with Verizon spending $23 billion to spread its fiber to the home service to 17 million homes. Analysts estimate that it cost Verizon roughly $670 to run fiber past each home in its footprint. That cost varies depending on a huge number of factors, ranging from how far apart homes are to whether or not Verizon could string fiber from telephone poles rather than bury it. Google doesn’t give its costs, and so far vendors are mum, but here’s what we do know.

It makes its own gear: From the infrastructure on the back end to the TV and Wi-Fi routers in the home, Google has built its own stuff. Most carriers rely on outside vendors to sell them networking gear and even set-top boxes. However, like Iliad, the operator in France that provides the Free mobile and wireline network, Google has built its own equipment. Several sources have told me that Google has ordered fiber gear from companies such as Ciena, asked them how the boxes work and then sent the optical engineers on their way.

Kevin Lo, the general manager of the Google Fiber business, told me that from the time the Google Fiber project was announced in February 2010, engineers have been working on the gear. There are two advantages Google gains here. The first is that it’s not shelling out hundreds of thousands of dollars on specialty equipment built for ISPs, but rather taking the most basic elements of a network and assembling them into custom gear, much like it does on the data center side. The second is that it can control all of the physical infrastructure that its network relies on — updating and tweaking it as needed.

It uses social engineering: It’s accepted that one of the most costly elements of building out a fiber network is the physical labor associated with strong cable, digging trenches and hiring people to terminate the fiber into the home. Google has already strung cable on power lines throughout Kansas City and lowered those costs by working with the local utility and AT&T to get access to the utility poles without having to pay high fees.

But to reduce the cost of the actual last mile to users’ homes it’s telling people in Kansas City that if they want to be the first to get fiber, they’ll have to convince their neighbors to sign up. The goal is to get a critical mass of between 5 percent and 25 percent of the homes in a given neighborhood (Google calls it a fiberhood) committed to signing up for Google Fiber before ever sending out technicians. Residents have until Sept. 9 to get their fiberhood on the leaderboard before Google starts rolling out its fiber.

Google’s Milo Medin and a Google fiber product manager.

Milo Medin, the VP of access services at Google, explained that with this model the folks in the first fiberhood will have their access within a week. This is also why the free service is so important to Google. If people buy into that process, it can get homes attached in those initial bulk deployments and reduce the number of times Google has to send out trucks and technicians. Medin says the $300 initial connection fee will cover the costs associated with the deployments — it’s not doing that at a loss either.

It will use QR codes and the Google Play store to change your relationship with set-top boxes and routers : I’ve already covered the cost savings at the core network and the last mile access, but the final place Google is shaking things up is in the home. Customer premise equipment is the bane of the ISP industry. Those boxes are expensive so many cable providers and telcos rent them to users, which drives users nuts. Users also are slow to update the devices, which can limit the type of services ISPs can offer and in many cases force a technician to come out and install them.

Google has built its own hard drive to act as a DVR, a TV box to provide channels and a network box that acts as a modem and provides Wi-Fi connectivity in the home — cutting out traditional providers such as Arris, Scientific Atlanta (Cisco) and others that make such gear. Medin says that those boxes will have a QR code that a technician will scan. The box then sends its activation information to the cloud and the box is now provisioned and activated for that customer. Eventually consumers will be able to do this for themselves, perhaps after they order a box on Google’s Play store.

All of these things will help Google deliver a gigabit per second to the home at a profit. Granted, that profit might not be as large as the broadband profits that Comcast or AT&T currently enjoy, but it’s a profit. And hopefully regulators and average consumers will look at what Google is doing and ask themselves, “Why are the Comcasts and AT&Ts of the world complaining about how much it costs to serve up broadband when Google can deliver 100 times the traditional ISP’s top speeds for the same or a lower price.”

If they don’t ask, then let’s hope Google will continue its expansion. When I asked, Medin wasn’t direct, but said, “This is a beginning.”

  1. Wow…could it be this simple? I can’t wait till they come to my little down of 2400.

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  2. “Google launched its fiber-to-the-home gigabit network Thursday in Kansas City, Kansas” I am pretty sure Kansas City is not in the state of Kansa ;) http://en.wikipedia.org/wiki/Kansas_City,_Missouri

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    1. Actually, it’s in both places. http://en.wikipedia.org/wiki/Kansas_City,_Kansas

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    2. it crosses state lines. There is a KC, Mo. and a KC, Kansas. If you don’t trust me, I shall see your Wikipedia entry and raise you this one :)

      http://en.wikipedia.org/wiki/Kansas_City,_Kansas

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      1. Michael Elling Friday, July 27, 2012

        Equally as important is that with one city they target/neutralize two state PUCs simultaneously. Competition has all but been destroyed in the US. The incumbent cable and telephone monopolies own many of the state legislatures. Additionally, telecom equipment and service venture funding has dropped 70% from the average it used to represent of total VC capital (15-20%) to less than 5% over the past 3-4 years.

        What Google is doing is very important. Add to that what the US Govt has done with BTOP (I’m not saying its a perfect system) and what is going on with Gig.U, we at least have 3 major competitive initiatives. Now MSFT, Cisco, Apple, Amazon, Facebook and all the application and tech giants need to wakeup to the bandwidth bottleneck and figure out ways to make infrastructure and access competitive. If they don’t, they may give Google the lead in the next broadband OS ecosystem.

        It’s truly amazing that people don’t realize the competition of the 1980s and 1990s is what got us here. Remonopolization is only a little over a decade old, but we can clearly see what a drag on the economy (and US technological preeminence) it already represents.

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      2. its in both KCMO & KCK

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    3. There is a Kansas City, Missouri and a Kansas City, Kansas. http://goo.gl/KET0c
      Google is deploying to both. http://youtu.be/6uZVqPuq81c

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    4. Hey Bob: There’s a Kansas City, Missouri AND a Kansas City, Kansas (basically across the river from each other.)

      https://maps.google.com/maps?hl=en&q=kansas+city&ie=UTF-8&hq=&hnear=0x87c0f75eafe99997:0x558525e66aaa51a2,Kansas+City,+MO&gl=us&ei=9hESUM3EIu3vigKP2oDIBg&ved=0CLMBELYD

      Check before posting, man. It *is* the Internet you’re using….

      Anyway, back on topic: It’s about time someone stuck it to the clueless, money-grubbing ISPs in the US….

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    5. Jayson Elliot Thursday, July 26, 2012

      And that, folks, is what happens when you combine hubris with lazy Wikipedia searches.

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  3. Reblogged this on txwikinger's blog.

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  4. My bet is that Google probably grabbed a few Motorola engineers to help design parts of its infrastructure. I’m sure that wasn’t a primary reason that the Moto purchase went through, but if the talent is there Google might as well use it.

    One result of “going it alone” on hardware is that the specs on the various devices are quite good, and they’re tailored to what customers might find useful. For example, a centralized HD-DVR is nothing new, but using it as a media hub for linear/on-demand TV and users’ own content…with 2TB of storage involved…is something that hasn’t been done, or done well anyway. Likewise, the router box doesn’t skimp on specs to get a lower price point, though I’m sure that buying components in bulk helps there…still, a router that can do 1000 Mbps of traffic in both directions, with onboard 3×3 MIMO 802.11n, is a pricey gadget.

    The Google STB is even more brilliant. Push most of the device smarts to the DVR box, but integrate an 802.11n access point, an Ethernet port and MoCa (or something like it) so that users don’t have to fool with third-party repeaters to get decent wireless coverage (where a TV is, there will be WiFi also), and they don’t have to do special cable runs to bring wired Internet to the game console that Google doesn’t intend to replace any time soon.

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    1. > a router that can do 1000 Mbps of traffic in both directions, with onboard 3×3 MIMO 802.11n, is a pricey gadget.

      No it isn’t. A Linksys E3200 costs ~$80, a similar TP-Link ~$45.

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      1. Except the ports that you plug PCs into runs at a gig but the port you plug the modem into isn’t, it only runs at a 100 meg. So the LAN side of that Linksys E3200 is a gig but the WAN side back to the ISP is capped at 100 meg. Besides this Google STB the only other routers with gigabit uplinks are in the enterprise and range from a couple thousand to hundreds of thousands.

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      2. Ron Rossman Monday, July 30, 2012

        But you’ll be hard pressed to find a consumer router that can do those speeds between the LAN/WLAN segment And the WAN segment. It’s hats enough to find one that doesn’t bottle neck even with 100-150Mbps that Comcast offers now (DOCSIS 3.0 modems can handle the speeds, but add in a regular consumer router and you may create a bottle neck)

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  5. Liberty Madison Thursday, July 26, 2012

    This is amazing – sharing to my audience at all of my tech lectures to ensure they sign up for Fiber via @lifewtechnology

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  6. Scan a barcode and “activate” the box? That was the single most stupid thing I’ve read. No wonder this business seems glacial over there.

    Look, your operator owns the active equipment in the network. When you pay they turn on your access port (which is the port in the switch closest to you labeled with your apartment or house number). Any box you plug in is provisioned by a server who determines by your which switch port houses you who you are and sends the right configuration data.

    How it works where I live is that whole neighborhoods were wired up in the early 00s when most people got broadband. By default you don’t have a contract so your port is flagged as such. When you plug in a computer and use a web browser you are redirected to a captive portal where you can order the data plan of your choice. Click the button, start using the service right away and your first bill is on its way. Total time maybe five seconds, no human involved. Prices are around what’s quoted here, $70 for gigabit but most people of for the 100 megabit plan for $30. It’s good to see Google shapes up this tanked market!

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    1. What is it you don’t like about the word activate?

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  7. If any Gigaom readers have friends/family in Kansas City, please encourage them to sign up for this service. It is important to make this a grand success so that similar networks spread across the US.

    Stacey wrote: “Several sources have told me that Google has ordered fiber gear from companies such as Ciena, asked them how the boxes work and then sent the optical engineers on their way.”

    I hope Google is careful here not to run into any patent issues.

    I don’t understand why the DVR box with 2 TB storage and the set top box should be two different boxes. Wouldn’t it be better to just combine them into a single box.

    Also, is the setup box a full fledged Google TV box? If not, why not? If yes, makes sense.

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    1. Mark Wilcox Friday, July 27, 2012

      A single expensive DVR box (essentially a NAS with some TV tuners) can potentially run a house full of cheap set-top boxes. Economically that’s the best way to do it by far. I was working on a prototype for that setup (not Google’s) back in 2007 – TV industry is pretty slow with technological change though.

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  8. is google fiber box expected to be defective as Google Nexus 7 tablet?

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    1. Probably just as defective as the iphone 4 was, smart mouth.

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      1. Except that the iPhone 4 had no defects, while the Nexus 7 has many. The reason is that iPhone 4 was built to high quality standards, while the Nexus was built for no profit to no standards.

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    2. Haha, “iphone 4 had no defects” sure it didn’t, let’s be honest Google and Apple both make decent products but they both have flaws…

      http://www.ibtimes.com/articles/234903/20111020/apple-inc-iphone-4s-defects-difficulties-siri-ios-5-camera-yellow-screen-download-speeds-sprint-at-t.htm

      http://www.cultofmac.com/174102/is-your-iphone-4-warranty-about-to-expire-here-are-the-defects-to-look-out-for/

      What Goolge is doing here will hopefully equate to a greater internet and TV experience for all of us, even those who use Apple products… what is it that Apple is doing for the whole of us?

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  9. Does anyone in Australia want to take a stab at what this is likely to mean for the politics of the NBN?

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    1. Mate this is what happens when you have real competition..unlike the telstra monopoly that we have had all these years…Oz telcos have had no real incentive to do something like this because they were able to simply build profitable infrastructure in the capital cities and not worry about the rest of the country..and left up to them that’s the way it would have been forever with less than 10% of the population of the U.S and a similar sized land mass…they were happy to keep most rural customers using wireless…$100 per month for 15 gb of slow unreliable data..but who knows what will happen once the conservatives get in…our NBN should be a bipartisan nation building network but instead we have an opposition that will kill it…most likely to give tax concessions to mining magnates..

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  10. BUT “Kansas City” means the city in Missouri. People living there literally say “Kansas City, Kansas” or “KCK” when they want to say something like, “That restaurant’s over in KCK.”

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    1. John Abreau Friday, July 27, 2012

      I can believe that residents of Kansas City, Missouri refer to their city as “Kansas City” and to the one in Kansas as “Kansas City, Kansas”. But it seems implausible to me that the residents of Kansas City, Kansas would refer to Kansas City, Missouri as “Kansas City” and their own city as “Kansas City, Kansas”. It seems more likely that the residents of Kansas City, Kansas would refer to their city as “Kansas City” and the one in Missouri as “Kansas City, Missouri”.

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      1. Actually, Kansas City MO is generally referred to as Kansas City, in conversation, by everyone. It is much bigger than than Kansas City KS, which is referred to as KCK.

        Most of the destinations you’d want to frequent are in Kansas City MO: museums, performing arts venues, professional baseball and football stadiums, multiple 4-year universities and the zoo.

        KCK has professional soccer and NASCAR.

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    2. Kansas City means the metropolis, including both KCK and KCMO as well as all of their suburbs. I don’t understand why this is so unfamiliar to people. The Kansas City metro is larger than Las Vegas in terms of population (http://bit.ly/4gpPfH)

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    3. Look, I live in KCMO and it’s either Kansas City, MO or Kansas City, KS.

      What Google is doing here is fantactic!

      Google rocjs!

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      1. Dang Android!.”rocks!”

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