I think you are correct that Google wants everyone to have fast and high bandwidth internet connections as it benefits their core search advertising business. Google Fiber is just one of many efforts including Chrome/V8 and Spdy.

However going head to head with AT&T in Austin will NOT help this effort. AT&T is signaling Google and, more importantly, other potential gigabit internet service providers that it will compete with you and thus reduce your margins in a very capital intensive (i.e. risky) business. Anybody considers something similar in another city will think again.

Does anyone think the timing is a coincidence? If not why is AT&T doing this?

I would speculate that AT&T cannot handle any more capital spending and the debt it would require. They can barely keep up with the spending on mobile and their landline business is dying. Internet service over their existing (i.e. paid for) infrastructure has got to be their best business (certainly on return on capital). Google Fibre does them no good.

> AT&T is signaling ... it will... reduce your margins

Yeah, that's what I took as your original point. I just think "reduced margins" is a completely empty threat to Google.

Say I sell widgets. Now, you sell widgets too, but your primary revenue stream is driven by "widget penetration," ie, the total number of widgets owned and used.

We have a price war. Who wins?

You do, because people having widgets is valuable to you, so you just give away widgets at cost. No, wait, you go farther. You split the increased revenue from your primary stream with your widget customers, you give people widgets UNDER COST.

And I'm sitting here, giving my widgets away for nothing, thinking, "He's going to rue the day he price warred with me. I have deeper pockets, so I can lose money longer."

But you're not losing money, you're increasing your revenues every day. My pockets can be 100 times deeper than yours, and I will still head, puzzled, straight to bankruptcy.

I mean, capital intensive, yeah, that'd matter for someone who didn't have cash to burn, but not Google.

Maybe this was where you were heading: No one can really join Google in this effort. Google cannot inspire a transformation then step back and let it happen. It now has to see it through, because the economics are unique to it, they don't apply to Joe Schmoe's neighborhood ISP. That might be true.

I don't think Google's strategy is to build these networks themselves but to demonstrate consumer demand and thus entice others to build them for them.

I can't imagine they actually want to spend tens, if not hundreds, of billions to wire even most US urban consumers with gigabit connections. This would radically change the nature of Google's financial position. Yes they would gain on search advertising but could it possibly justify the cost?

AT&T is seeking to demonstrate how competitive and thus unprofitable this business will be making it very difficult to justify the costs or even obtain financing. Sadly while this is good news for Austin it is probably bad new for everybody else hoping for a gigabit connection.

> However going head to head with AT&T in Austin will not help this effort. AT&T is signaling Google and, more importantly, other potential gigabit internet service providers that it will compete with you and thus reduce your margins in a very capital intensive (i.e. risky) business.

Lots of firms with an established role in a market "signal" things like that when a competitor is heading to market with a new product ahead of them. Fewer of them follow through effectively.

The situation is very special in capital intensive industries like this. When you have to invest and thus borrow huge sums of money to create a business everyone involved is keenly aware that competition can put the entire investment at risk. Many times in the past firms and whole industries have gone bankrupt (e.g. cars, airplanes, steel).

This is why capital intensive industries typically are dominated by a small number, often just one, of big firms. This has been well studied in a branch of economics called Industrial Organization.

A standard reference is Sutton's "Sunk Costs and Market Structure: Price Competition, Advertising, and the Evolution of Concentration" (2007) http://www.amazon.com/Sunk-Costs-Market-Structure-Concentrat...

> The situation is very special in capital intensive industries like this.

Sure, if Google didn't have the money lined up for Austin when they announced Austin, AT&T's signalling could jeopardize it, but, because its such a capital intensive industry (and because its not Google Fiber's first time around the block, either), that's unlikely.

What would jeopardize Google Fiber's longer term effort is if AT&T actually delivered something in Austin that made Google Fiber there unprofitable (and even then, it really only threatens Google Fiber if Google doesn't perceivea greater benefit to its other services from getting widespread affordable 1Gbps service to consumers than the loss from continuing to expand Google Fiber.)

> This is why capital intensive industries typically are dominated by a small number, often just one, of big firms.

Yes, because its hard for anyone to get the capital to make the outlay to compete, regardless of "signalling" by existing market players. Usually, anyone who has the capital has a less-risky way to invest it than trying to break into a capital-intensive industry with established players.

However, if a big player in another major industry with enormous resources to which the actions of the established players in the capital-intensive industry are a risk (as is the case with Google vis-a-vis the telecoms) is involved, there is a different story, as that player's interest in the industry extends beyond the gains that can be made in that industry. (Actually, that doesn't change the long-term trend of concentration, it just makes it more likely that the trend will be bucked in the short-term by the introduction of a new player.)