Google Inc (GOOG): What If Fiber Loses Money?

Foul– you cry

“Big deal,” I hear you shouting. So Google Inc (NASDAQ:GOOG) invests years and hundreds of millions of dollars (perhaps billions) in hooking-up KC, Austin, and Provo. What percentage of America, let alone the world, will have access to these ultra-fast connections? 1% tops?

What Google is doing is putting pressure on the largely monopolistic telecommunications companies, or telcos, and cable providers like Time Warner Cable Inc (NYSE:TWC) and Verizon Communications Inc. (NYSE:VZ) to counter their moves. Both companies have invested a lot of money in infrastructure in the past, and investors had better prepare for them to invest a substantial amount more.

I have used both Time Warner and Charter Communications, Inc. (NASDAQ:CHTR) in the last couple of years, and Internet access on the second-tier plan is not only frustratingly slow on a frequent basis, but also intermittent. I have proposed to many people the option to upgrade to gigabit speeds for a few dollars a month more and 100% said yes.

With proof that Google Inc (NASDAQ:GOOG) is serious about this project, the telcos are responding. To stave off competition and keep their customers, Verizon and Time Warner will likely be upgrading, bringing higher speeds and better service to consumers.

Whatever the telcos invest, (and it will likely be billions of dollars) will come at expense to earnings and cash flow, and will likely affect the near-term price of both stocks. However, if you’re a long term investor, should the telcos choose not to invest in keeping their customers to keep short-term profits up in light of the Google Inc (NASDAQ:GOOG) threat, there would be no surer sign to sell. Just something to keep in mind.

Bottom line

The faster and more ubiquitous Internet service is the more Google benefits. Additionally, it will allow Google a foray into your living room, and bring YouTube and its channels to your living room at speeds that closely match your viewing experience of TV.

By threatening the telcos with competition and getting them “head them off at the pass” Google is in fact leveraging the telcos to help speed up the deployment of a Google world, and their business plan in the process. Fiber out Big G!

The article Even if Google Fiber Loses Money- It’s Brilliant originally appeared on Fool.com.

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