If Google Fiber winds up being a profitable venture, as Google says it is aiming to achieve, it probably will have to operate its business much as does Sonic.net, a facilities-based Internet service provider that sells 1-Gbps broadband access for $70 a month, the price Google Fiber also is offering in Kansas City, Kan. and Kansas City, Mo.
Sonic.net takes a slightly different approach, bundling voice and broadband, where Google has chosen to bundle entertainment video and broadband access. But both share a common business challenge, namely finding a way to build networks and adapt operating costs in ways that allow each to run a fiber to home network offering access speeds vastly higher than offered by cable operators and telcos, without the advantages of scale those other competitors often possess.
Sonic.net already offers consumers 1-Gbps service for $70 a month. Sonic.net also notes that its construction cost is about $500 for each home passed. And since Sonic.net gets about 33 percent take rates, the effective network cost for each customers is about $1500.
There are additional costs for installing an actual drop for a consumer, plus the in-home customer premises gear. It might not be unusual for such installations to represent another $200 to $300 in labor and equipment.
So some of us would argue that Google Fiber will have to operate much as Sonic.net does, if it really hopes to make money with Google Fiber in Kansas City, Mo. and Kansas City, Kan., at its now-prevailing prices.
Sonic.net claims that it makes money at $70 a month, with penetration of about 33 percent. Some might argue Google Fiber will have to do a bit better, as it has higher costs, as a video services provider, than does Sonic.net.
But the challenge is clear enough. Can Google Fiber demonstrate economics dramatically better than what cable operators and telcos have been able to achieve? Sonic.net suggests it might be possible, though not easy.