AT&T May Attempt Price War With Google Fiber

With Google's launch of a one-gigabit high-speed fiber network in select cities, analysts and some investors have speculated that traction with Google Fiber, a so-called virtual multiple systems operator (MSO), could eventually undercut traditional Internet service providers (ISPs) and lead to the un-bundling of cable TV packages. The scenario of a nationwide virtual MSO -- or at least one with scale in most major metropolitan areas in the US -- could be the foundation for the rise of a la carte media offerings from the likes of Netflix, Amazon Prime, Apple and even Google. It could also chip away at the video bundles that drive revenue at ISPs such as Comcast, Time Warner Cable, AT&T and Verizon, while weakening the pricing power of Disney, CBS and Time Warner.

Google Fiber is likely to offer its 1 Gbps service and a set of pay-TV channels in Austin for $120 a month, similar to Kansas City where the service has seen strong signs of adoption. Will AT&T in rolling out a competing service try to undercut that pricing package? If so, what looked like a profitable virtual MSO offering with internal rates of return in excess of 30% could become a far more economically challenging proposition in a larger rollout. One thing is clear, firms like AT&T are investing heavily in broadband and wireless communications infrastructure as they try to tap growing consumer demand for streaming video. Google Fiber and AT&T's similar offering indicate improving service and consumer choice, even if the direction of industry-wide profit margins becomes muddled.