Why Has Google Stopped Investing in Broadband?

November 13, 2009

Google, flush with a $22 billion cash horde and generating a whopping ~$10 billion in annual free cash flow, was the only original funder of Clearwire not to provide new investment capital for Clearwire’s broadband deployment expansion, in a $1.5b fund raise announced this week.

  • Clearwire’s CEO Bill Morrow, said: “Today’s news is also further validation of the importance of our 4G network to our strategic investors.”
  • The open question here is why was Google the only original funder to not believe it strategically important to continue to invest in accelerating a cutting-edge, national broadband buildout to all Americans — or to invest in more national broadband competition?
 

In these tough economic times and with much less cash on hand or free cash flow to invest, Sprint, Comcast, Time Warner Cable, Bright House, and Intel, all concluded it was indeed strategically important to continue to invest in accelerating broadband deployment to all Americans and increasing broadband competition.

Unfortunately, the hard-to-avoid conclusion here is that Google only invests in broadband when it has something specific to extract for Google’s special benefit.

  • It appears that once Google’s original investment secured the quid pro quo that Clearwire would support net neutrality and would operate in accordance to Google’s version of net neutrality — Google no longer sees a need to “invest’ further in Clearwire.
  • It also appears that now that Google is confident that the FCC’s proposed net neutrality regulations will only apply to their broadband cloud computing competitors and not to Google, there’s no need to invest in broadband because the FCC will ensure that broadband providers can’t charge Google for its world-leading bandwidth consumption.
  • Remember how Google offered to bid the minimum amount for the 700 MHz wireless spectrum auction, in order to ensure that the FCC would go ahead and encumber the “C” Block license with two of Google’s special open access conditions/regulations.
    • Our primary goal was to trigger the openness conditions,” said Richard Whitt, Google’s Washington telecommunications and media counselper the New York Times.
    • Google’s self-serving gaming of that 700 MHz auction process shortchanged the taxpayer of an estimated ~$7 billion.
  • Remember more recently, Google has admitted to blocking calls via Google Voice and justified its actions with the assertion that Google should not have to pay high rates to ruralcos like everyone else is required to pay by the FCC.
    • The obvious implication here is that Google does not believe it has any obligation to contribute to the overall cost of the network like everyone else does.
  • Also relevant to this question of Google reticence to invest in broadband is the recent Arbor networks study, which concluded Google is the biggest generator of Internet traffic globally, and which directionally confirmed the core conclusion of my first-ever estimate that Google’s uses many times more Internet bandwidth than it pays for.
    • This “who pays” for the broadband Internet question is particularly timely and relevant to two big public policy developments:
      • The FCC’s National Broadband Plan to Congress; and
      • Chairman Boucher’s planned House legislation to reform Universal Service to support broadband access service.

What all this means is that the evidence continues to mount that Google looks at broadband for what it does for Google and not anyone else.

  • Google has long supported the government and others investing more in broadband because, as Google’s cofounder Larry page told a Washington forum last year, Google will make money off every new broadband subscriber eventually.

The common theme here is that Google is highly self-serving and expedient when it comes to broadband funding/investment.

  • In essence it appears Google has concluded why should they invest in broadband for all Americans if they can get the government and others to do it for them and on Google’s terms?
  • At core Google appears to believe it is entitled to be a net-taker from the broadband system not a net-contributor — even though Google is the single biggest user of bandwidth and the single biggest beneficiary of more broadband.

In sum, concerning the National Broadband Plan and Universal Service, Google apparently believes — why contribute when one can be such an enormously profitable free-rider?

  • No one profits more — if the FCC’s Open Internet regulations turn broadband providers into de facto public utilities — than Google.

 

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