AT&T to Build Gigabit Fiber in Austin

Moneybox
A blog about business and economics.
April 9 2013 3:22 PM

AT&T Getting in on the Gigabit Fiber Game

AT&T announced today that it wants to build a gigabit fiber network in Austin, Texas. That sounds like great news for Austinites, but the really interesting section of the release is this: "AT&T’s expanded fiber plans in Austin anticipate it will be granted the same terms and conditions as Google on issues such as geographic scope of offerings, rights of way, permitting, state licenses and any investment incentives."

Google, you say? Yep. Google pioneered this technology with its Google Fiber project in Kansas City and recently announced plans to make Austin the second Google Fiber city. And I think the right spirit in which to read this announcement is as a warning to Google—stay out of our turf.

One of the main reasons there's so little competition in the wired telecommunications market is precisely this dynamic. If one company comes in and builds a state-of-the-art network it bears large costs but gets to earn monopoly profits. If a second company comes in and builds a second state-of-the-art network, then both companies have large costs and both only get to charge the competitive price. At the monopoly price, the investment is worth making. At the competitive price, the investment isn't worth making. Normally the upshot is that you don't get the "second company". But it's also possible to pursue a pure spoiler strategy. AT&T won't make a profit building a copycat gigabit fiber network in Austin, but it may be able to ensure that Google doesn't make a profit either. That can work to deter Google from entering any other markets. At a minimum, it might deter them from entering any AT&T markets and inspire them to look at cities where people rely on Comcast or Verizon for broadband services.

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On the other hand, Google may not care. AT&T is in the business of selling internet access. Google is primarily in the business of selling ads. But they do lots of other stuff, from autonomous cars to gigabit fiber networks in Kansas City. To the extent that Google Fiber is mostly just a shot-in-the-dark bet that raising the nationwide broadband game will somehow redound to Google's benefit, the company can just shrug AT&T off.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

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