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With balloons and fibre, Google experiments in web access



REUTERS
SAN FRANCISCO, AUG 17

From sending solar-powered balloons into the stratosphere to offering free Wi-Fi in parks, Google is quietly spending hundreds of millions of dollars on nascent Internet services that may one day challenge the telecom and cable companies. In recent months, Google Inc has announced plans to bring free wireless Internet access to 7,000 Starbucks cafes across America, eventually displacing AT&T Inc; it has asked US regulators for broader access to wireless airwaves; and it has launched 30 solar-powered balloons over the South Pacific ocean, designed to beam the Internet to remote regions. Then there is Google Fiber, the high-speed cable TV and Internet service that was introduced in Kansas City late last year and that will be expanded soon to Austin and Provo, Utah. Fiber delivers Internet speeds at 1 gigabit per second, as much as 100 times faster than the average US network. Google is happy with customer responses in Kansas so far and may roll Google Fiber out to a few more US cities, according to several people close to the project. “Fiber is considered the golden child right now within Google because of its disruptive nature and the applause that they get from the communities using it,” said a former member of Google Access, a group headed by Vice President Milo Medin, who drives the company’s Internet access projects. Medin, a networking industry veteran who founded the seminal @Home cable broadband network in the 1990s, leads a few hundred employees. The group operates autonomously with its own engineering, finance and marketing units, according to the source. As Google delivers more music, videos and other content to mobile devices, it has become increasingly invested in ensuring it gets the bandwidth it needs. Web access projects like Fiber could help Google grow revenues beyond its maturing search business, and give it more insight into consumers’ online habits, crucial to making ads more effective. But Google would be venturing into territory far afield from its traditional strengths and margins may suffer as a result, analysts said. The company would also be competing against well-established Internet service providers, such as AT&T or Time Warner Cable Inc. Content providers have clashed with distributors in the past. For instance, Netflix Inc, which streams billions of hours of video every month, has accused cable company Comcast Corp of giving its own content preferential treatment. The future of US federal regulations that forbid Internet service providers from blocking or slowing another company’s online offerings are currently up in the air, with Verizon Communications Inc challenging the rules in court. “Users want more speed. They don’t want artificial ceilings imposed on what’s possible on the Web,” said Kevin Lo, general manager of Google Access. Lo said Google was pleased with the customer response to Fiber in Kansas City so far, but he declined to give details such as subscriber numbers, financial goals, or expansion plans. Building high-speed networks is a cumbersome process that requires tearing up streets and working with local governments to get access to utility poles and approvals. Given Fiber’s small footprint and the limited amount of online services that actually need such high bandwidth today, the immediate threat to cable and telecom companies may be limited, according to some industry observers. Time Warner Cable President Rob Marcus said in April he believed Google Fiber “passed” only 4,000 homes in Kansas City at the time. “The number of defections we’ve seen is de minimis at this point,” Marcus said. AT&T Inc said in April that it was ready to build its own 1 gigabit per second fiber network in Austin, provided it receives the same treatment from local authorities as Google, which plans to begin connecting homes there in mid- 2014. “I have to think that the existing players are trying to figure out how to respond to this, because if it gœs bigger it will definitely give them a new kind of competition,” said Bill Coughran, a partner at venture capital firm Sequoia Capital. To make a difference to Google’s overall business, which is expected to generate roughly $60 billion in revenue this year, the Fiber service needs to achieve significant scale. In a city of 1 million households for example, Google would reap a modest $288 million a year in subscription revenue if 20 percent of families were to sign up for its $120 monthly TV and Internet service. If Google were able to enlist half the homes in the city, that could mean $720 million in annual revenue. Bernstein analyst Carlos Kirjner estimated the cost of making Fiber available to 300,000 homes in the greater Kansas City region at $170 million. Expanding Fiber to 20 million US homes, which Kirjner believes is not likely, would cost $10 billion to $15 billion, he wrote in a research report. Diving into the access business in a bigger way could in the short term hurt Google’s operating margin. Michael Binger, a portfolio manager at Gradient Investments which owns Google shares, said he is comfortable with the company’s current level of investment in projects like Fiber. With $54 billion in cash, Google can afford to fund experiments such as Fiber and Loon— the air balloon project run by Google X, the secretive arm of the company that specializes in bold, futuristic projects such as robot cars. Loon involves creating an airborne wireless network using 12-meter-tall, super-pressured air balloons powered by the sun. They would drift along relatively slower air currents in the stratosphere and run off batteries at night. In June, Google launched a test of 30 balloons over New Zealand equipped to deliver 3G-like wireless speeds to ground antennas that in turn transmit the signal to wireless devices. The goal is to eventually keep a large fleet of balloons in the skies, though analysts say Google will face many technical and regulatory challenges operating such a network. A high altitude air balloon is seen floating over a remote area of New Zealand in this handout photo provided by Google.



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