Incumbent carriers' response is exactly what Google intended to provoke

6 May 2013 by Steve Blum
, , , , , ,

Google’s fantastic fiber voyage on (a long) course to a happy ending.

In the same way the tiniest virus can trigger a massive flood of antibodies, Google’s willingness to bankroll competitive – and likely money-losing – fiber to the home projects in a handful of markets is rewriting capital investment plans at major carriers.

CenturyLink’s decision to build out an FTTH network in a limited area of Omaha is, as many have pointed out, a special case. An outside plant upgrade there is urgent enough to justify the necessary capital expenditure now. But CenturyLink – and AT&T and Verizon and the rest – are subject to the same competitive pressure elsewhere and will respond over the long term. Or else they’ll lose their duopoly (in some cases, monopoly) power in their service areas.

They can’t afford to do that: the choice will be spend the capital sooner and maintain control of the market, or lose their duopoly position and spend even more capital later, with less return on investment.

It won’t happen quickly. The shift will develop over the next five to ten years, assuming Google stays the course. And take twenty years or more to play out. Omaha will give CenturyLink real world numbers and experience on which to base future fiber deployment decisions. It’ll be the same in Austin, assuming AT&T’s intentions amount to more than a press release. Based on what they learn, they and other incumbent providers – telco and cable – will upgrade over time, even in places where existing plant meets current needs.

A minor threat to an incumbent’s monopoly or duopoly position results in a disproportionate investment of capital and operating expense. This corporate immune system response to the infection of competition is shaking incumbents out of their willingness to let wireline networks rot on the poles.