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Is Nationwide Google Fiber Financially Prudent?

December 11, 2012 - Written By Kody Frazier

Nationwide Google Fiber. Did you just get a little bit excited from the prospect of such an idea? Ever since Google started their experiment in providing home internet/cable service in the Kansas City area, people have been dreaming of a day when they could order the service from any corner of the nation. Imagine a world in which people across the U.S. have access to 1 Gigabit fiber connections, amazing television access, and a Nexus 7 as the remote to control their new setup. Hold onto that image, cherish it in fact, because there’s very little chance we will see such a sight in the real world any time soon.

Despite the idea that Google has an endless supply of capital at their disposal to do with as they please, the reality is that they have about $45 billion in cash right now. How much would it cost to build out their cable empire? Only about $140 billion according to a recent Goldman Sachs report. Even Google would cringe at the idea of taking out a $100 billion dollar loan. How did they come to this figure? Well, here’s an excerpt from the report that covers some details:

“Building out the infrastructure will be expensive. In his September 17 report Still Bullish on Cable, although not blind to the risks, Goldman Sachs Telco analyst Jason Armstrong noted that if Google devoted 25% of its $4.5bn annual capex to this project, it could equip 830K homes per year, or 0.7% of US households. As such, even a 50mn household build out, which would represent less than half of all US homes, could cost as much as $70bn. We note that Jason Armstrong estimates Verizon has spent roughly $15bn to date building out its FiOS fiber network covering an area of approximately 17mn homes. The cost of ongoing test cases like this and the potential for significant cap ex investments also likely contributed to the company’s recent decision to issue non-voting class C shares in an effective stock split, in our view. Moreover, in the same note, Jason Armstrong also pointed out that Google’s TV offering represents the fifth (or higher) competitor in an already competitive market. All that said, while this initiative is clearly still in very early days, going direct to consumers with internet connectivity and video distribution could give Google the potential to become the end users sole channel for media consumption.”

So, it’s probably not happening anytime soon, at least not on a nationwide scale. Google undoubtedly plans to expand this service into other metro areas following the success they’ve had so far in Kansas City. The question is, where next?

Source: Business Insider