Bernstein Research Likes What It Sees in Google KC FiberGoes door-to-door and finds strong interest in new fiber offering 5/05/2013 08:00:00 PM Eastern
Bernstein Research is high on Google Fiber as a viable over-builder
with the possibility of grabbing a bigger share of cable customers than
traditional over-builders, in part by offering a differentiated service.
A Bernstein Research door-to-door survey of 204 residents of
Kansas City found both "extremely high" awareness of Google's new
fiber offering (98%), and a willingness to buy, which the researcher said could
mean it will be a successful cable over-builder.
"Google is clearly trying to offer something
different," said Bernstein, pointing to broadband upload speeds that are
many times faster than cable. "Google will deploy multiple Wi-Fi-enabled
boxes in the home, trying to achieve better in-home coverage and
throughput," said Bernstein, pointing to its other efforts to
differentiate. "While we think it is extremely hard to differentiate the
linear TV content offer due to restrictions imposed by content licensing agreements,
Google is trying and will continue to try to differentiate the feature set of
its video offer."
The Wall Street research firm said it did not think that
Google Fiber would pass several million homes within the next couple of years,
but it said, in the wake of the survey, that it was "substantially more
positive on the prospects of Google Fiber to be an economically attractive
business for Google on a stand-alone basis," by which it meant separate
from whatever positive effect it had on Google's core business -- search and
a note to investors last June, Bernstein said it still had a lot of
questions about the KC service, including "whether or not Google Fiber
offers will attract large numbers of customers in the Kansas City market."
According to the survey, 52% said they would
"definitely or probably" buy Google Fiber, while another 25% said
they may purchase the service. By contrast, only 19% said they definitely or
probably wouldn't buy it. Most of those said they planned to sign up for
bundled broadband and pay TV.
Of the 160 residents (77%) who said they were considering
the service, 60% said they were extremely or very likely to buy it.
"These very high purchase intent numbers do not allow
us to rule out the possibility that Google will indeed achieve very high penetration
of homes passed, well in excess of the typical 20% to 30% that over-builders
have achieved historically in their most successful markets."
Bernstein says it thinks Google's $50 per month for adding pay
TV to its $70 per month stand-alone broadband is a way to reduce churn and take
a bite out of the cable competition, in this case Time Warner Cable rather than
a price point at which it will be making money.
Bernstein does not have a problem with Google's lack of
traditional telephony in its bundle, saying that it does not think customers
would decline to switch to Google's "more compelling" broadband offering
because it does not include that third leg of the triple play.
It also argues it is a smart move because Google avoids the
regulatory burdens like Universal Service and E911.
Bernstein says it does not think a "scorched
earth" response from MSO's will work with Google Fiber. "Google has
the resources to continue to build out and extend its footprint, even if the
profitability of its initial markets is hampered by aggressive incumbent price
cutting," says Bernstein.
The survey was of 204 residents in areas where
Google has marketed its fiber service and where it was either already being
offered or would be offered in the next few weeks. Bernstein has rated Google
"outperform," its highest rating, at a target price of $1,000.