Is Google’s (NASDAQ:GOOGL) Fiber Going to be the Next Big Thing?
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Google (NASDAQ:GOOG) has launched its fast internet service called Fiber, which is now being considered by people to be the ultimate broadband service. As of now, Fiber has drastically altered the structure of the numbered markets that it has stepped into. Major cities are dashing to finish Google (NASDAQ:GOOG)’s agenda and get Fiber in their general vicinity but in spite of this accomplishment, there’s one major reason as to why it’s contender AT&T (NYSE:T) might steal the show.
Google (NASDAQ:GOOG) has provided Fiber to the country as a solution to mediocre broadband speeds. Fiber has the capacity to download 1 GBPS which is around 100 times faster than the normal speed of broadband services. Fiber is already in three business arrangements to venture into extra cities. In response to this, AT&T (NYSE:T) has presented Gigapower, which runs at about 300 MBPS and has the future plans to run at about 1 Gigabit per second.
AT&T (NYSE:T) has already laid out a plan to expand into 100 cities. But with this, AT&T (NYSE:T) and Google (NASDAQ:GOOG) are both facing a common issue which is that it is not easy and cheap to handle all the basic foundation and system structures. According to an estimate by Goldman Sachs, if Fiber is provided to around 50 million homes, which is not even half of the households in the US, Google (NASDAQ:GOOG) would have to use up to $70 billion and around $140 billion in case of the entire country.
This is where AT&T (NYSE:T) takes the lead and will probably be the winner of this 1GBPS war. So keeping this in mind, investors should take a look at the report of the earnings of the third quarter of Google (NASDAQ:GOOG). In the third quarter this year, Google (NASDAQ:GOOG) was majorly criticized for substantial costs in spite of the decline in its traffic acquisition cost. Everything considered, Google (NASDAQ:GOOG) works in an industry where it is required to use and put resources in its schemes in order to stay ahead of its opposition.
In any case, Wall Street sees a large profit margin from Google (NASDAQ:GOOG) as the company secured about 23% operating income margins in the past 12 months. In the third quarter, Google (NASDAQ:GOOG) used $2.4 billion on capital ventures, which probably incorporates some investments in Fiber, while AT&T (NYSE:T) used an astounding $5.2 billion. Subsequently, broadband remains to be a top need for AT&T (NYSE:T) and its Wireline portion.
At the end of the day, Google (NASDAQ:GOOG) doesn’t have the money or the backing from financial specialists to put resources into Fiber at a rate to stay aggressive with AT&T (NYSE:T)’s development. In 2013, Google (NASDAQ:GOOG) used $7.35 billion on capital ventures whereas AT&T (NYSE:T) used around $21.2 billion. In this manner it is quite difficult to envision where Google (NASDAQ:GOOG) can get its hands on those extra billions of dollars every year to achieve 50 million families faster than AT&T (NYSE:T) hopes to do.