It’s a Gigabit Thing

Speed_Street_SignYou hear so much about Google’s gigabit Ethernet product in Kansas City that it’s easy to not notice that gigabit fiber is popping up all over the place. And when I say gigabit I mean something that people and small businesses can buy, because there are already thousands of towns and cities that have brought gigabit speeds to schools or to very large businesses. But the new trend is to offer it to everybody.

There seems to be a race to call your town a gigabit community, meaning that gigabit speeds are available to all. But you have to be careful in looking at these claims. There are places that have embraced the concept and made a gigabit connection as inexpensive as former DSL connection. Next is Google which set a premium price of $70 for a gigabit, and there are now a number of communities matching that price. But there are also communities that have gigabit speeds, but at pretty high prices of $200 to $400. Finally, there are communities that are bringing gigabit to a business park or their schools and still claiming the designation as gigabit community. So all such claims about being a gigabit community are not the same, but at least they all have created some gigabit connections.

What is really going to matter, in the long run is if people really buy the gigabit. Let’s take Google as an example. They offer a gigabit product for a flat $70 per month and they are still waiving a $300 installation fee. But they also offer an option to buy 5 Mbps for up to seven years for the one-time payment of the $300 installation fee, or $25 per month for a year. I’ve seen news reports where Google has neighborhoods with over a 70% penetration, but that doesn’t tell us how many people have paid the premium price and how many people jumped on the really great cheap deal.

So it’s going to be really interesting to see if companies report gigabit penetration rates. Almost every one of my clients offers a range of data products and almost universally they find that 70% to 90% of their customers will buy their ‘okay’ product and not their premium product. This is largely a matter of economics and there is a big difference in many households of paying $40 instead of $70. But this also means that there is a significant number of households that will pay the premium price, which I assume means that they feel they need the faster speed

One of the interesting things you see when looking at the list of gigabit communities is that they are mostly small towns. Google is building large towns and reluctantly dragging along AT&T and the large cable companies. And then there are a few middle-sized markets with gigabit like Lafayette, LA, Chattanooga TN and Omaha, NE. But the vast majority of gigabit communities are smaller places.

We see small municipalities, independent telephone companies, cooperatives and Indian tribes investing in gigabit fiber in some really small towns and remote places. These providers and these communities are generally looking at gigabit fiber as a way to distinguish themselves from surrounding towns to attract or keep jobs. One of the biggest worries in most rural communities today is that their kids are all fleeing the communities to find jobs. Such communities look at this trend and worry that they will dry up and blow away over the next century if they can’t find a way to keep their talented kids home and keep their communities growing and vibrant. And so for many communities, building fiber feels like an investment in their own future.

And I am guessing such communities are right. If there is only one town in a region that has affordable gigabit fiber, one has to imagine that over time that businesses will migrate to that town, bringing jobs and prosperity. This is very much akin to what happened in the past with other innovations. There were cities and towns that prospered because they were close to a railroad, or to an interstate highway or were the first to get electricity in a region.

There is literally not a day that goes by any more where I don’t see another town saying that it will soon by a gigabit community. I almost started listing a lot of them in this blog and finally realized there are enough of them now that this would become just a list of small towns. But as many as there are, these towns are only a tiny fraction of the rural towns in America and we have a long long way to go until we are a gigabit nation.

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