Thursday, October 12, 2017

Report Questions Value of Google, Facebook Broadband Investments -

A new report by ABI Research casts doubt on the real-world value of Facebook and Google's experiments in the telecom space. According to the company's new report, roughly $2.5 billion was spent last year worldwide by "webscale giants" in their attempts to disrupt and improve the telecom sector. But that number falls well short of the $400 billion spent by fixed and mobile providers globally last year, notes the report.

From Google Fiber and Google Loon to Facebook's experiments with Drones, the ABI report implies these efforts tend to generate headlines, but haven't accomplished all that much in terms of actual market improvements due to comparatively modest budgets.

"On one hand, these activities are a timely reminder for operators not to stay complacent as all industries have been proven to be prone to disruption, even those with heavy regulations," said Lian Jye Su, Senior Analyst at ABI Research. "But on the other, we would like to question the rationale behind such decision, given the huge disparity between the capital investment between both sides. While the internet giants come up with innovative approaches, none of the approaches are financially sustainable or scalable at the moment."

Outbuilding companies like AT&T and Verizon will be largely impossible, ABI argues, citing specifically their stranglehold over the spectrum that will be necessary for fifth generation (5G) wireless. Instead, companies like Google and Facebook should focus on collaborating with existing carriers, notes the report.

"The elephant in the room is obviously the spectrum and infrastructure resources owned by the incumbents, such as base-stations, poles, and trenches," said Su. "While the arrival of 5G opens up more options for network deployment, the existing resources offer advantages difficult to be ignored and act as a high barrier to entry. Collaboration is the way forward."

That said, there's a few problems with ABI's narrative. One, companies like AT&T and Verizon generally see companies like Google and Facebook as adversaries, especially as telecom giants pursue online advertising markets. Traditionally, incumbents utilize everything from lobbying to lawsuits to thwart anything resembling real competition, making collaborating with them more idealstic than is sometimes practical.

Similarly, not everything Google and Facebook are doing can be measured in cold hard dollars and cents. Google Fiber, for example, may have fallen short in terms of real-world broadband deployments, but it helped generate a massive five year conversation about the abysmal state of broadband competition, impacting not only industry gigabit pricing ($70 became the standard thanks to Google Fiber) but policy. Like Google's decision to use Loon broadband balloons to aid Puerto Rico, some of these efforts are relatively hard to affix a hard dollar sign to.

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