Google Fiber US-wide rollout puts NBN in perspective

A report from Goldman Sachs, estimating that a nationwide rollout of Google Fiber will cost US$140 billion to complete in the US, puts Australia's fibre-to-the-premise NBN project in perspective.

A research note from investment firm Goldman Sachs has estimated that the cost for Google Fiber to roll out 1Gbps fibre-to-the-premises across the entire United States would cost US$140 billion.

Google Fiber began switching on services in Kansas City last month, offering up to 1 gigabit-per-second upload and download speeds to residents for, at most, US$120 per month .

While many other cities in the US may be looking on in envy and hoping to get Google Fiber rolling out to their town, the report from Goldman Sachs that a full rollout would cost US$140 billion is likely to burst their bubble. Although Google is reported to have US$45 billion in cash, it seems very unlikely that Google is going to do a nationwide rollout any time soon.

Goldman Sachs analyst Jason Armstrong projected that, if Google devoted 4.5 percent of its annual capital expenditure to Google Fiber, it would cover 830,000 homes per year. This means it that would likely take over a century to get the fibre laid across the entire country.

As Forbes contributor Tim Worstall noted, US$140 billion may seem like a lot for a company to take on, but if there is somewhere between 100 million and 200 million households in the US, it works out to be around US$1000 per premise. Worstall noted that the US government spends much more than US$140 billion annually on defence, with the 2012 budget standing at US$1.03 trillion. But with the deadline to the fiscal cliff edging closer, it's pretty unlikely that US President Barack Obama is about to embark on a US national broadband network anytime soon.

By comparison, Australia's National Broadband Network (NBN) — funded by government equity and paid off over several decades — is rolling out to 12.2 million premises by 2021 . While 11.2 million will be covered by the fibre-to-the-premise component of the network, the remaining 1 million will be serviced by fixed-wireless or satellite services. Capital expenditure for the network will be AU$37.4 billion, and operating expenditure will be AU$26.4 billion.

Given that NBN Co does not break the cost to roll-out fibre down to a per-premise cost — it is secret under the much-relied-upon "commercial-in-confidence" arrangement — it is difficult to tell how the difference stacks up to the cost for Google Fiber. A simple division of the capital expenditure for the NBN puts the cost at over AU$3,000 per premise, but that ignores the variations in the types of technology and other factors, so it is not a particularly useful measurement.

While it might appear more expensive on the surface, NBN Co will ultimately be rolling out the network much faster, and at the peak of the rollout, the company estimates that it will be passing 6,000 premises per day.

In July, I had noted, perhaps somewhat controversially , that Google Fiber was offering faster services to consumers in the US at a lower cost than the sort of retail plans we are seeing in the NBN marketplace today. In order to raise the capital to fund a wider rollout of Google Fiber, it is not inconceivable that Google would change its product offering and potentially raise prices in order to get the cash to pay for it, without having to dip into its own savings. But will customers be willing to pay more to get the fibre?

Broadband policy will become a key debate for the 2013 Federal Election, with Shadow Communications Minister Malcolm Turnbull promising a network rolled out faster, cheaper, and more affordable to consumers — though he is not, at this point, able to say how much cheaper, how much faster, or how much more affordable that will be. He has frequently cited international case studies on how fibre-to-the-node networks can be rolled out faster, and at around a quarter of the cost of a fibre-to-the-premise network. So it will be interesting to see where Google takes its own fibre network rollout next and how we can potentially apply it to the Australian experience.

In any case, if Google did embark on a major national broadband network rollout in the US, Turnbull would say that it showed that the free market can work in fixed broadband infrastructure and that the government has no place in rolling out fibre.

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