Google Broadband Does Not Compute

Google Broadband Does Not Compute
By Matt Phillips
Copyright by The Wall Street Journal
February 10, 2010, 6:00 PM ET
http://blogs.wsj.com/marketbeat/2010/02/10/google-broadband-does-not-compute/?mod=yahoo_hs


Google is a wonder to behold.

Its iconic brand took advertising by storm and its business model churns out cash — $25 billion on hand right now. Even so, shareholders should still ask themselves if Google is losing focus.

Wednesday’s news that Google plans to build a broadband network and start selling super-fast internet services is just the latest example.

We wondered how much it would cost to supply super-fast broadband to some 50,000 to 500,000 people — or between 20,000 and 200,000 homes. So did Benjamin Schachter, an analyst at Broadpoint AmTech, who eyeballed the total cost in a note Wednesday:

If we assume 20k-200k homes at $3k-$8k per home, this test could cost anywhere from $60mil to $1.6bil. At a rough mid-point of 100k homes at $5k per home, it will cost $500mil. While these are not small numbers, they will hardly dent GOOG’s cash reserves of ~$25bil.

Fine. Google clearly has the scratch to pull this off.

But, since it is their money, Google shareholders have a right to question exactly why broadband is good for GOOG. Here’s Schachter’s thoughts:

Despite GOOG’s claims that this is an experimental test, we believe this will be negative for sentiment, as investors definitely do NOT want to see GOOG going in this direction … The bottom line: While we do not fully understand the rationale, for now it is just a test. Additionally, this is not out of character for GOOG, in that the company constantly discusses big ideas. As long as it remains a relatively small test, it should not impact the financial model meaningfully, but investors continue to be concerned about GOOG’s focus.

That focus, of course, is Google’s near-godlike dominance in the search business.

Still, we couldn’t help but notice the latest comScore search numbers for January out Wednesday show that — while Google remains the behemoth of search — its market share slipped slightly last month as Microsoft’s Bing — stop laughing! — posted its eight-straight month of modest gains.

Google’s shares fell 0.37% on Thursday and are down 14% since the Jan. 5 introduction of the Nexus One, its last big step into a new business.