Google Fiber confronts geographic heterogeneity

Google Fiber‘s network build in Kansas City is publicly organized around fiberhoods.  A fiberhood is a small, geographic area that is a candidate for having Google fiber installed.[1]  Google is prioritizing its network build across fiberhoods based on the extent to which fiberhoods exceed pre-registration goals.  Differences in pre-registration goals across fiberhoods suggest cost and expected per-household profitability heterogeneity across fiberhoods.  Differences in pre-registrations received indicate take-up heterogeneity across fiberhoods.

The initial distribution of pre-registration goals across fiberhoods was simple.  A majority of fiberhoods (57%) had a preregistration goal of 10%.  Only two other pre-registration goal levels existed: 25% (for 13% of fiberhoods) and 5% (for 29% of fiberhoods).  The distribution of network build costs across fiberhoods is probably much more continuous than this simple pre-registration goal distribution.  Hence a reasonable conjecture is that the pre-registration goals, which differ by a factor of five, are not closely related to network build costs.  Heterogeneity in expected per-household profitability, or some other factor, apparently is determining pre-registration goal levels.[2]

Pre-registration take-up heterogeneity appears to be significantly affecting Google Fiber’s build.  As of August 29, 2012, about 15,900 households had preregistered, and about 99 fiberhoods (out of 202) had met or exceeding their preregistration goals.  Each fiberhood exactly meeting its pre-registration goal implies about 16,200 pre-registrations.  Hence Google Fiber has nearly met in aggregate its pre-registration goal, but the distribution of those preregistrations implies a network build to less than half of the fiberhoods.  Google Fiber recently announced that it has adjusted downward its pre-registration goals. That change favors a broader network build.

Successfully investing in mass-market network infrastructure is a difficult business.  Four cable companies have unsuccessfully attempted to build networks in Kansas City.   According to public FCC data, the number of providers of high-speed Internet access varies considerably across census tracts in Kansas City.  Most high-speed internet service provides in Kansas City probably serve only a few, highly specialized customers.  Google Fiber is an interesting mass-market experiment that is likely to evolve as its reveals more information about network costs and customer demand.

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Data: public data on Goggle Fiber fiberhoods in Kansas City, as well as public data on other networks (Excel version)

Notes:

[1]  Currently defined for the first stage of the Google Fiber build in Kansas City are 202 fiberhoods in Kansas City, Kansas, and in Kansas City, Missouri.  The median fiberhood size is 771 households, with upper and lower quartiles of 1096 and 461 households.  For details, see the fiberhoods sheet.

[2] As of Aug. 29, the median pre-registration shares across the sets of fiberhoods with goal shares of 5%, 10% and 25% were 8%, 6%, and 13%, respectively.  If goal shares are inversely correlated with household income, that pattern of take-up suggests free Internet service is dominating take-up.

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