Google’s FTTH Experiment Unlikely to Spark Gigabit Broadband Revolution

Despite Google Inc.’s recent selection of Kansas City, as the initial location for the company’s broadband networks capable of gigabit speed Internet service, it could be a decade or more before such high-speed delivery will be widely available in North America, according to IHS iSuppli.

The Google announcement on March 30 marks the search giant’s first foray into fiber-to-the-home (FTTH). FTTH can deliver connections many times faster than current technologies, by means of fiber optic cable instead of the telephone companies’ traditional copper phone lines or cable operators’ hybrid fiber coax (HFC) networks. Google said the initiative will deliver speeds of up to 1Gbps and involve as many as 500,000 subscribers.

FTTH continues to be a high-growth segment of the broadband market as deployments move forward in nearly every developed and developing country.

The move comes at a time when worldwide usage of FTTH is on the rise. Worldwide, 5.52 million new FTTH subscribers were added in the fourth quarter of 2010, resulting in a total of 77 million subscribers, IHS iSuppli figures indicate. Except for the third quarter in both 2009 and 2010 when numbers dipped slightly, growth has accelerated throughout the last two years.

However, the worldwide growth in FTTH is not being reflected in North America. “Regardless of Google’s efforts, gigabit-rate speeds may not be within reach of the average U.S. household for many years to come, conceivably up to a decade or more,” said Lee Ratliff, senior analyst for broadband and digital home at IHS. “Aside from the expected high cost, gigabit service faces other more significant obstacles to adoption, especially in North America.”

These obstacles include lack of competition among broadband providers, which is reducing pressure among them to offer faster service and lower rates. Furthermore, there are no new applications on the horizon that are driving demand for faster broadband speeds.

“These factors have contributed to moderated demand from consumers, who often don’t take advantage of higher-performance tiers of service that are available today.”

There also is a lack of fundamental demand for faster broadband among North American consumers.

“Despite the wishes of broadband activists, technology evangelists and communications equipment manufacturers, Americans remain largely ambivalent regarding broadband performance,” Ratliff said. “According to the Pew Internet 2010 poll on broadband, 51 percent of broadband subscribers subscribe to the most basic tier of service, unwilling to pay the $6.82 extra per month on average that premium subscribers pay.”

Finally, the market is being stymied by a lack of economic incentive among broadband service providers.

“Service providers know that revenue does not scale with broadband speed and that pricing is inelastic, with the sweet spot for mainstream use remaining at around $40 to $45 for Internet access regardless of speed,” Ratliff said. “And despite improvements in performance, pricing has remained relatively constant over the years. As a result, investing heavily in networks to gain a quantum leap in performance but only to earn the same revenue is often a non-starter.”

Through its effort, Google said it hopes to learn how to economically deploy and operate FTTH networks, as well as to gain insight into new types of applications that will arise when virtually unlimited bandwidth becomes available. In addition, Google will wholesale broadband access on the network, enabling multiple internet service providers (ISPs) to compete for customers, in the process providing customers with increased choice and competitive pricing.

Google’s Kansas City effort will be among the first gigabit networks in North America. Even Verizon’s FiOS FTTH network—the gold standard of broadband performance in North America—currently tops out at 150Mbps, a fraction of Google’s promised rate. Compared to the average subscriber’s maximum rate today, the Google project will be more than 100 times faster.

IHS iSuppli