Alphabet (GOOG, GOOGL) launched Google Fiber a couple years back, and it was seen as the company’s next big thing — internet and TV services 100 times faster than the average broadband service.
AT&T (T) quickly responded with GigaPower, and equal speeds. Therefore, GigaPower and Fiber’s expansion has become a race of sorts, a race that AT&T is and clearly will win.
AT&T Wastes no Time With GigaPower
What AT&T did was launch GigaPower in 23 new markets, which are mostly the surroundings of nine metro areas. This makes a total of 18 metro markets where AT&T offers GigaPower service.
This is a remarkable feat, seeing as how AT&T just announced its 21-market, 100-city expansion plan for GigaPower in April 2014, and is now up to 18. In that April press release, AT&T noted that it is eyeing a total of 25 metro areas for fiber deployment. Chances are, AT&T will quickly move on the rest of these markets as well.
In the meantime, Google Fiber is currently in just three markets with six more listed as “upcoming Fiber cities.”
Keep in mind that Fiber launched ahead of GigaPower, yet AT&T has blown past Google in its expansion, something that will continue and prevent Google Fiber from ever becoming the next stock-driving business that GOOGL investors so desperately hoped for.
Why GigaPower Will Continue to Thrive
The reason that GigaPower is beating Fiber and will continue to do so comes down to dollars and cents — actually, billions of dollars. According to Goldman Sachs, it would cost GOOGL $70 billion for Fiber to reach 50 million households in the U.S., or $140 billion to reach 100 million.
Granted, those expense figures were provided early last year, and GOOGL has since done a great job with a build-to-demand business model, making customers agree to service prior to its construction. GOOGL has also done well in gaining city support, and certain perks like the use of existing utility poles rather than purchasing new ones. These things cut the costs involved, but for GOOGL to reach tens of millions of customers, it would still have to spend many billions of dollars.
Meanwhile, AT&T already has much of the needed infrastructure in place. Its fiber-to-the-node, FTTN, already supports 57 million U.S. locations, and as part of its DirecTV acquisition AT&T agreed to expand its fiber to the home network by another 11.7 million locations. Therefore, the cost for AT&T to deliver fiber to the home is not nearly as robust.
AT&T has capital expenditures of about $183 billion versus about $11 billion for GOOGL over the last 12 months. This is a major increase from the $3 billion that GOOGL spent back in 2012. More than likely, that figure will rise as Google invests to expand Fiber, which could eventually weigh on GOOGL stock.
Meanwhile, AT&T investors expect the company to spend $15 billion or more annually on capex, and with its free cash flow rising from $10 billion last year to $15 billion this year, AT&T has the financial freedom to spend aggressively and roll out GigaPower nationwide.
With U-Verse previously accounting for nearly 10% of AT&T’s total revenue and once being its fastest-growing business, there’s no question that GigaPower is important for the future of AT&T.
Why High-Speed Broadband Is Important for AT&T
AT&T plays a crucial role in the Internet of Things; its network is what connects all those billions of things to the internet. The number of things connected to the internet is expected to grow 10-fold to nearly 30 billion by 2020, and these things will connect to both mobile and broadband networks.
Given this increase in mobile and broadband data consumption, it is imperative for service providers to boost speeds for these networks.
That’s exactly what AT&T is doing, setting itself up for long-term success by not only having a top wireless network, but also a best-in-class broadband network.
Ultimately, AT&T’s move with GigaPower adds yet another great reason that it is a terrific investment opportunity moving forward.
As of this writing, Brian Nichols owned shares of T stock.
