Google Fiber US-wide rollout puts NBN in perspective

Google Fiber US-wide rollout puts NBN in perspective

Summary: 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.

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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.

Topics: NBN, Google, Government, Government AU, Networking

About

Armed with a degree in Computer Science and a Masters in Journalism, Josh keeps a close eye on the telecommunications industry, the National Broadband Network, and all the goings on in government IT.

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78 comments
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  • National security

    This is a perfect example - for such a low price the us should mandate this as in the best interest of national security. Having the fastest level of Internet available in every home makes it safer to protect against attacks from other countries using higher speeds.
    It makes it so more people have information available for learning. It makes high levels of technology both easier to learn and easier to provide (share) with others. Imagine what could be accomplished if most if not all children in the us could instantly communicate with their school, teachers, and class..... Any problem could be worked on instantly.
    One of the largest threats we have to deal with now is hacking and spying remotely.... Imagine a huge base of new hackers (children) with the fastest Internet learning not only how to stop these attacks but to go on the offense (yes I realize that's scary to many citizens but with guidance it would enable us to remain a leader in the world)
    mheez
    • Call me a nutter...

      You can call me a conspiracist nut if you want, even I wonder, but I don't think the US government has any intention to help educate their population or even to fully protect their people to an extent.

      I suppose that would work as an argument for why Turnbull doesn't want the NBN either. It CAN help with better education - God forbid the population develops a collective intelligence and realises Turbull/Abbott/the Noalition are full of it!
      d0vr
      • Keep a cool head

        Whilst I really wish the coalition would leave what's currently in the pipeline, they don't exactly say that no money should be spent. It's more about what it's spent on, how much and how long it will take.
        At least we live in a country where our government can have national approaches to issues like this.
        Nimos-92373
        • cool head ?, rational analysis of the facts would be more intelligent

          Nimos.
          You can Guarantee it will be appreciably faster?
          You guarantee it will be appreciably cheaper. ?
          You guarantee it will serve our needs for the next 50Years ?
          You guarantee it will cost the taxpayer less over the 20 Years ?

          Waiting for your evidence based response with appropriate links - not goebellian spin from News Ltd, protecting their sunk investment in Pay TV from that horrible competition they claim is such a necessity for everyone else but themselves
          Abel Adamski
  • USD 140b vs AUD63b

    9.8m km2 vs 7.7m km2

    pop 315m vs 23m

    Taxpayer guaranteed contribution USD0 vs AUD40b.

    Competition supported vs competition retired.

    Yep we're onto a real winner;-)

    In other NBNCo news :

    "The Australian can reveal that, of the first-release sites, the take-up is averaging 25 per cent, whereas 73 per cent of all Australian households have broadband.
    ...
    Nationwide, the take-up is about 15 per cent, prompting the Coalition to question the multi-million-dollar advertising blitz for the $37.4 billion network.
    ...

    Senior construction sources involved in the NBN say that while the rollout was currently on track, they feared that holidays, potential labour shortages and tardy council approvals would mean the network builder would likely miss its highly publicised target of passing 341,000 premises with fibre optic cabling by June 2013.

    One senior executive from a construction firm involved in the NBN said that, based on the current state of the rollout, NBN Co would fall short of that target by 20,000 to 30,000 premises"
    http://www.theaustralian.com.au/story-e6frgaif-1226534899142

    Josh any news of NBNCo Xmas embargo?
    Looks like we're not getting much value for all that money. NBNCo spokeman says he's happy with the results (I'm sure he is given the pot of gold).
    Richard Flude
    • Not the same

      For starters there is huge difference between a Goldman Sachs report and construction underway. There is nothing big underway in the US whereas here there is.

      Somehow there is a funny idea that is peddled every time a government builds something that if private enterprise builds it nobody will pay for it and its free. On a national scale, the money has to come from somewhere whether it's taxes or revenue from customers other ways.
      Nimos-92373
      • Who peddles such information?

        No one I know believes in free money. It is a question of who pays; taxpayers (by decree) or consumers (by choice).

        Then there's the question of efficiency and value for money.

        Plenty of NBNCo ads, shame about it's delivery and demand. I guess we'll have to wait for next years corporate plan revision. Maybe they can come up with a new metric (premises we're thinking of connecting);-)
        Richard Flude
        • "It is a question of who pays; taxpayers (by decree) or consumers (by choice)."

          Of course before you go out and spend $140 billion on a FttP network capable of 1gbps in America you have to go out and determine if there is demand for such a product. Is there Fluddy? Surely you wouldn't endorse such 'reckless' spending even if it was done by the private sector.

          "Then there's the question of efficiency and value for money."

          The NBN is value for money. A fibre network covering 93% of Australian premises coupled with satellite and wireless networks costing just 3 billion per year for nine years. It's a relative bargain considering the alternatives which are without a doubt a colossal waste.


          "Plenty of NBNCo ads"

          Needed to educated the dummies. I see so far it has failed. I don't endorse these adverts. Waste of time mostly.
          Hubert Cumberdale
          • Is there actually a choice?

            "It is a question of who pays; taxpayers (by decree) or consumers (by choice)."

            Agreed to a point, both cases it comes out of GDP whether government or private. However there is hardly a choice now for fixed broadband. One things government can do is get massive economies of scale and lending at much lower rates. This potentially means a better return on investment for a government sponsored project.

            I realise governments haven't always been the best managers or projects, but there are also plenty of cases where private enterprise have made a complete mess also, it's just that they can hide this much better.
            Nimos-92373
          • There is something gov't can do

            Get out of the way. It's mostly municipal governments that set up monopolies or regulate potential competitors out of competition.
            stano360
          • You realise the Google network won't be built?

            "Surely you wouldn't endorse such 'reckless' spending even if it was done by the private sector. "

            If Google was to embark on such spending it wouldn't have any of my money; I suspect few others.

            "The NBN is value for money."

            Who could argue with such evidence.


            "Needed to educated the dummies"

            Without any information; I see that as a real winner. Call it for what it is.
            Richard Flude
          • "You realise the Google network won't be built?"

            Wow, such insight! derp! and yet more proof the private sector are incapable of building a fibre network with 93% coverage here in Australia.




            "If Google was to embark on such spending it wouldn't have any of my money; I suspect few others."

            yeah I think you can stop whining about taxpayers money now, karl and many others have already schooled you many times on this point. Also that doesn't answer the more pertinent question (nice dodge attempt btw) that is: Is there a demand for 1gbps connections? Yes or no?





            "Who could argue with such evidence."

            Do you believe a fibre network covering 93% of Australian premises with satellite/wireless networks covering the other 7% costing just 3 billion per year for nine years is not value for money? If so explain why.





            "Without any information; I see that as a real winner."

            I'm not surprised the point is lost on you. Unfortunately you still quote the Australian after all, a publication written by mental midgets for mental midgets.
            Hubert Cumberdale
          • Schooled?

            It is taxpayers money. Can't you read the corporate plan?

            I don't believe it is value for money as lower cost service can provide improved capacity at a fraction of the cost and build time. Also the elimination of competition I believe will be bad for consumers.

            I enjoy The Australian becasue it has more variety of opinion in its staff than any other Australian paper. I see how the Leftoids find this threatening, more a reflection on them however.
            Richard Flude
          • You have been schooled, you're just one of those kids who learns slowly

            "It is taxpayers money. Can't you read the corporate plan?"
            No, it is borrowed money. It seems it is you who can't read.

            "I don't believe it is value for money as lower cost service can provide improved capacity at a fraction of the cost and build time."
            Any evidence to support this claim? Educated opinion is that FttN is more expensive, not significantly faster to roll out, and a far inferior technology. Counter the experts with facts, not Liberal spin.

            "Also the elimination of competition I believe will be bad for consumers."
            What competition? There is no competition in the infrastructure space for the vast majority of Australians. You can't eliminate something that doesn't exist.
            Additionally, that is simply your opinion. History and common sense dictate that infrastructure competition is detrimental and unsustainable.
            karl_w_w
          • Actually no

            Borrowed by the govt on behalf of taxpayers. Serious who do you think is borrowing the money?

            High speed internet is been delievered in other countries. These projects have deleievered services for less govt money and faster than the NBNCo. NBNCo
            s expenditure and delivery is remarkable in its non-performance : $2m in revenue after spending $3b and 3yrs.

            The supposed "educated" opinion assumes fttp as the end poits and ignores the time value of money. It was opinion commissioned by the govt to show exactly what it did. Alternatives exist in the realworld today.

            Before the NBNCo there was more competition in the telco space than in anythime in the past. This was reflected in the prices and services offfered to consumers which over the past decade.

            Yes it is my opinion. History in Australian telco doesn't support your claim (so much for commonsense). The market pre introduction of optus was very bas for consumers. Telstra still suffers from its public service baggage (EOC service recently quoted over 3x price of the most competitive solution).
            Richard Flude
          • No Government money has been used

            It amazes me that some people keep tossing this line out, over and over. Very very simple situation Richard - no Government revenue is being used.

            Thats not very hard to understand, but you keep FUD'ing the situation and use the "The Government has raised the money, so it must be taxpayer money" when it isnt.

            Let me put it a different way. Revenue raised by the Government, through taxes, etc, would be the equivalent of the Govt's salary. They get so much, they spend it, much like you and me.

            The bonds sold to raise the capital for the NBN on the other hand, is more akin to going to the bank to get a mortgage.

            Do you declare the money the bank loans you as income? Of course not.

            And thats what this is. The NBN has effectively been mortgaged, with money raised by its use over time paying that mortgage off. The money raised for the capital expenses, the build costs, the maintenance costs, and the user fees raised are all separate expenses and income as a result.

            That money raised doesnt go into budgetary considerations, and neither do the costs it covers. So for the taxpayer, who really only cares about the budget, the money isnt relevant.

            Why is that such a hard thing to understand?
            Gav70
          • No dividend

            Gav70 - The NBN Co approach is so bad (no competiton) that you will never see any money back out of this. Your childrens children will be paying off this so called investment.

            Even assuming NBN Co stick to the business plan the so called returns are lower than the private sector - effectivley meaning it is a subsidised loan at best, but more likely a defaulted bomb for our kids to pick up. Also interesting that whenever Quigly wants to beat up a supplier he does it under the guise of "we are using taxpayer money and need to get value for money for the taxpayer". Has anyone told him it is not taxpayer money ?
            Rossyduck
          • Gut feeling...

            of serial NBN hater vs. analysis of the NBN Corporate plan, McKinsey/KPMG, Greenhill Caliburn etc...

            Hmmm, whoever should we listen to?
            RS-ef540
          • Well then . . .

            the question is can it EVER turn a profit to pay off the loan.

            IF the posited costs are correct, then what economic model will provide a profit at $1600 PER PERSON infrastructure costs (imho double that) and $100 per month PER PERSON? And that's at 100% acceptance, which will NEVER happen.

            This looks and smells like the High Speed Train issue in California.
            stano360
          • I wish I could choose how the government spends my taxes

            Thats the issue with the tax payer funded NBNco argument.
            I don't support the government handing cash out to people in the form of baby bonuses, childcare and first home owners grants. The funny thing with these government programs is they successfully drove demand up and also cost up, so the reality is the cash helps no one but the business. Tax payers still end up funding the businesses that benefit!

            At least the NBN will be able to propmote business, education and health fairly. If you want it you pay the same amount as someone else. So the government will get the money back through the people who use the NBN.

            Unlike those who use middle class welfare and other ridiculous programs started by various governments to win votes.
            Justin Watson