Biz Plan for Google Fiber Frays at the End

With one more day to go before the deadline, Google has signed up only 10% of eligible households for its gigabit-speed broadband Internet and TV service.  That’s well below the 25% they were aiming for in the 202 designated “fiberhoods” in the Kansas City, MO, and Kansas City, KS, area.

About 21,000 households of the roughly 161,600 eligible have pre-registered for the fiber service, according to Stacey Higginbotham at Gigaom.

Google has spent the past six weeks trying to rally early adopters to sign up their neighbors, setting thresholds for participation to qualify a fiberhood for the rollout.  The original bar was 25% of households in each area, but after disappointing take-up in many of the neighborhoods, Google decided to lower the thresholds for 73 of them. With that fudge, 138 of the fiberhoods have qualified so far to be wired for the service.  [UPDATE: As of Sunday’s midnight deadline, 180 fiberhoods qualified.]

Once Google runs its fiber-optic cables into those neighborhoods, any resident can sign up for the $70/month gigabit-speed broadband connection and TV service — or even opt for a free 5 Mbps connection for a one-off $200 installation fee.

Google’s “build-by-demand” model for rolling out fiber-optic broadband is new for the cable industry, and designed to keep initial capital costs low and proportional to its customer base.  This scalable rollout plan, plus other innovations on the traditional cable model, are meant to make the fiber venture actually profitable for Google, not a loss-leader intended merely to increase Web use and thus the company’s ad revenue.

But Dave Burstein at Fast Net News estimates that Google Fiber would need a participation rate of 20% to 30% to be profitable, rather than the 10% take up it has seen so far.  Of course that 10% represents pre-registrations for a product that doesn’t technically exist yet.  Once the service is up and running — and visiting neighbors can actually see what a 1 Gbps connection can do — Google could well see a post-rollout surge in sign-ups.

Regardless, Google’s foray into fiber is under no pressure to turn a profit anytime soon.  Not only is the company sitting on a cash hoard of $45 billion, but Ars Technica’s Timothy B. Lee points out that Kansas City taxpayers — even the ones who didn’t sign up — are giving the project considerable support.  From waiving right-of-way fees to providing Google free power and office space — even free direct mail and marketing services — the agreement between Google and Kansas City, MO, included an array of subsidies for the company.

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