The Battle for Austin

Official seal of City of Austin

Official seal of City of Austin (Photo credit: Wikipedia)

An interesting battle is shaping up in Austin as AT&T and Google are taking the early steps in head-to-head competition. Both have announced that they will build gigabit networks in the City. The obvious beneficiaries of this business will be the top-end customers in the City. It will be interesting to watch how both companies do there.

Other than a few greenfield tests, this will be AT&T’s first foray into fiber-to-the-premise. They have built their broadband business using DSL over multiple copper lines. It’s obvious that AT&T is drawing a line in the sand with Google and telling them that competition with fiber in AT&T markets is going to be met with competing fiber.

AT&T has announced their pricing for their faster product. Initially they will be offering Internet speeds of up to 300 Mbps, with the promise that those products will be upgraded for to gigabit free once the fiber has been built. This certainly gives them a leg up early since they have the ability to sign customers now.

There are two pricing options for the AT&T data product. For $99 customers will get the full gigabit (after upgrade). But interestingly, customers will be able to get the same gigabit speed for $70 if they agree to let AT&T monitor their Internet usage and give them directed advertising. That makes you pause for a second until you realize that this is the Google model. Every customer who uses a Google product, be that Gmail, Google+ or any of the other host of products is continuously monitored so that Google can know more about them. I think AT&T is being quite clever in that this compares their $70 product directly to Google’s product. What I think AT&T is really offering is a premier-priced product that comes without monitoring.

Both companies offer a handful of cable TV options. At least for now one would think AT&T has a leg up in this area since the word in the industry is that customers like all of the programming options they get with today’s U-Verse offering.

If Google sticks with the same product line they have in Kansas City, then they will also be offering a $70 gigabit offering and a few cable options. So the two companies will have the same basic price for gigabit service and will not be competing on price.

A gigabit product prices at $70 is clearly a product aimed at the more affluent households in the market. A lot of homes are going to find that too pricy regardless of the speeds that come with the product. In Kansas City, Google only rolled out their gigabit product in neighborhoods that guaranteed them at least a 15% take rate. It is going to be interesting in Austin, with two gigabit providers to see if there are many places where Google will be able to achieve that same take rate. If they can’t get that, how much will they build in Austin?

In any market a large percentage of households go for products in the $40 range for Internet, regardless of what other speeds are available. To some degree this is a matter of economics, but it also has a practical aspect. Most likely the households who subscribe to a $40 service in Austin are those homes who have not yet chosen to watch much of their video on the web. House holds with multiple people who are all trying to use the web for video are finding basic Internet products to be inadequate.

There is another competitor in the market, Time Warner, and nobody is talking about them. One has to think that today that they are the predominant ISP in Austin since the cable companies have won that battle almost everywhere over DSL. One would think that if they can offer something relatively fast, say 50 Mbps download for less than $50 that they might hang on to the majority of the market while the other two companies beat up each other going for the top end of the market.

One last point to mention in that I am scratching my head trying to figure out how AT&T is going to deliver speeds today of ‘up to 300 Mbps’ over existing copper. Such speeds over DSL either require the customer to be very close to the DSLAM or else require multiple pairs of copper, far more than the normal bonding of two pairs. From what we know about AT&T’s normal networks, those are not practical alternatives. There are fiber-to-the curb technologies that will deliver 300 Mbps, but those require fiber very close to the home. So that claim has us wondering if that is a real claim or a marketing claim.

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