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Is cable holding back superfast broadband adoption on purpose?

The cable industry says it is more than ready to compete with Google Fiber, but adds that consumers are nowhere near ready for gigabit speeds. Is it cable's pricing schemes that are holding back adoption?

Comcast CEO Brian Roberts talks with CNBC's Becky Quick at the 2013 Cable Show.
CNET/Marguerite Reardon

The cable industry insists that it's ready and able to compete with Google Fiber when it comes to delivering ultra high-speed broadband.

Indeed, Comcast CEO Brian Roberts last week showed off a 3Gbps cable broadband connection at the industry's annual trade show in Washington, D.C. That's three times faster than Google Fiber, which itself is nearly 150 times faster than the current average broadband connection in the U.S. Armed with that capability, he confidently welcomed Google's challenge to deliver ultra high-speed broadband to consumers.

"I hope there's a demand for (Google Fiber)," he said during a keynote session at the Cable Show. "The more customers crave speed, the more the kids in the garage and the geniuses around the world can invent applications that require speed. That's the best thing that can happen to our industry. We have to embrace that competition."

But Roberts' words and one demo don't match up with the actions of his industry. The cable providers have been slow to make its speedier options broadly available, and when they do, they charge significantly higher prices that escalate as you move to faster tiers. Based on how the industry has chosen to price its service, it's clear that cable operators are not exactly encouraging adoption of ultra high-speed broadband. In comparison, Google is expanding Google Fiber to more markets, and offers a much faster connection at reasonable rates.

It's not a surprise that Google Fiber came up at the cable show. The service, which has generated a lot of buzz and piqued the interest of communities across the country, threatens to upend the cable Internet model, which has only needed to compete against one other competitor for home broadband, the similarly regulated telecom industry. The fact that Google is offering a 1Gbps connection for only $70 a month, while competitors are offering service with 20 times less capacity for roughly the same price, has spurred discussion among policy makers and consumers.

CNET/Marguerite Reardon

For now, Google Fiber remains more a curiosity than a legitimate threat. After Google announced plans to build its own gigabit-speed broadband network in 2010, it was seen more as a science experiment than a true challenge to the cable industry. But in recent months, it looks like Google plans to turn Google Fiber into a money-making business. It first launched in Kansas City, Mo., and Kansas City, Kan., last summer. And this spring the company announced plans to deploy in Austin, Texas, and Provo, Utah.

Roberts made sure to note during a speech at the Cable Show that cable is up to the task of matching and even exceeding Google's offering. He emphasized that gigabit-speed downloads are already possible today using current cable technology.

Higher speeds don't come cheap on cable broadband
While Roberts is talking about hypothetical speeds, Comcast's actual -- much slower -- service is still pretty pricey.

Comcast, the nation's largest cable provider, offers its 50Mbps service at a promotional price of $60 a month for the first six months. After that, depending on the market, prices range between $59 and $75 a month. The company's 105Mbps service, which is only available in some markets and is roughly 10 times slower than Google's 1Gbps service, costs $90 a month for the first six months of service. After that the price goes up to $115 a month.

Its fastest option is a 305Mbps service, but it's limited to only a few markets and is a hefty $320 a month.

Comcast also charges a one-time $500 installation fee for this service. For Google customers subscribing to the 1Gbps service for $70 a month, installation is free.

Time Warner Cable, the only cable operator currently competing against a Google Fiber market, not-so-coincidentally offers 100Mbps service in Kansas City. Time Warner's top speed elsewhere in its territory is 50Mbps. Pricing for the 50Mbps service starts at $75 per month with an introductory 12-month offer for new customers only. The company doesn't publish on its Web site what the rate is for that service after the introductory period is over.

NCTA President and former FCC Chairman Michael Powell recently wrote in an editorial for The Hill that cable companies now offer 100Mbps broadband service to 85 percent of all American homes.

This may be true, but getting access to those higher tiers of service is expensive. For instance, where a 100Mbps service might cost a cable broadband customer $115 a month, a 20Mbps service could cost half that. Slower speeds cost even less. And in an economic environment where many consumers can barely afford cable TV service, the pricing of these services encourages consumers to buy packages with slower network connections and less capacity.

In comparison to cable, Google's pricing for its 1Gbps (1,000Mbps) service is dirt cheap, considering the capacity it offers customers. For the 1Gbps broadband service, Google charges $70 a month. This pricing is comparable to 50Mbps services offered by many cable providers.

A speed test of the 1Gbps Google Fiber service in Kansas City shows blindingly fast uploads and downloads. CNET/Marguerite Reardon

And for customers who can't afford or do not see the value in a 1Gbps service, the company is offering a 5Mbps service for the first seven years for free. The only thing customers must pay for is a $300 network installation fee, which can be paid off on a monthly basis.

Phil McKinney, CEO of CableLabs, a not-for-profit research consortium funded by cable companies throughout the world, argued that it's easy for Google to build such a robust network and offer service at low prices because it's "cherry picking" the segment of the population it wishes to serve. Meanwhile, cable operators cover more than 90 percent of homes in the U.S. and because their networks are bigger, it is more expensive to serve their customers.

He has a point. Google has made it clear that when it chooses a city for its Google Fiber projects, it only picks places where local governments are willing to make deployment easy and cost-effective. The company also will only deploy the network in communities where a certain percentage of the households have committed to signing up for the service.

McKinney also said that much of the cost for delivering very high-speed service is in the fiber that must be laid to deliver the service. While cable operators haven't deployed fiber directly to individual homes, which is the most expensive, but effective, way to build a network, they have installed significant amounts of fiber in other portions of their networks.

In theory, because they already have the fiber and other infrastructure in place, increasing speeds for cable operators should only be incrementally more expensive. This is especially true when compared to Google, which is still literally in the trenches deploying fiber directly to individual homes.

But McKinney argues that because of the large scale of cable networks, it's actually more expensive to increase speeds.

Cable's big plans for the future
Regardless, the cable industry is pushing for faster service. CableLabs is already working to standardize the next evolution of technology, DOCSIS 3.1, which makes more efficient use of the network and can deliver download speeds up to 6Gbps.

"All the innovation that is happening right now plays to our strengths," Roberts said. "We think we are in a wonderful position. But we need apps that can take advantage of these speeds."

DOCSIS 3.1, which uses a different modulation technology to transmit signals over a hybrid fiber and coaxial network, is still in development. McKinney said it should be commercially available in 2015 or 2016.

While there is no question there is plenty of life and innovation left in the infrastructure that cable operators have spent more than $200 billion building since 1996, the industry has hesitated in pushing ultra high-speed services to consumers.

Even though 1Gbps or even 4Gbps service is possible today, none of the big cable operators are offering anywhere close to these speeds to consumers.

In fact, the average American broadband customer is only getting about 7.4Mbps download speeds in terms of broadband, according to a report published this spring by Akamai, which analyzed data from the last quarter of 2012. Remember that Roberts was demonstrating 10Mbps downloads as cutting-edge technology in 1996.

Still, this average speed is an improvement of about 28 percent compared with the same time a year ago. And it was good enough to help the U.S. break into the top 10 in terms of network speeds, by moving up from 12th place in terms of average speed to 8th.

Akamai's report suggests that speeds are improving for two reasons. Broadband providers have replaced old technology with newer tech, which has meant a move to DOCSIS 3.0 for cable operators. Consumers are also beginning to express a preference for higher-speed services, most likely driven by more usage of streaming video.

Do consumers even need a Gig?
But even though customers are starting to upgrade to higher tiers of service, they still aren't clamoring for superfast speeds of 100Mbps or even 1Gbps. In fact, even Google Fiber users in Kansas City say that 1Gbps is overkill. Entrepreneurs in Kansas City, who flocked to Google's first "fiberhood" and set up shop there for access to Google Fiber, say they can't use all the available bandwidth.

CNET/Marguerite Reardon

"We could easily do what we need to do on a day-to-day basis with a 100Mbps connection," said Tyler Van Winkle, director of product development and marketing for Internet search startup Leap 2.

But he admitted that having the extra bandwidth in both directions is nice to have.

"It's a real glimpse of the future," he said. "We can do batch uploads much faster. With this kind of bandwidth, we're able to support four startups in the same building with a single connection. And we're paying a lot less than what we'd pay if we got a much slower service."

On the cable side, even customers subscribing to 100Mbps services aren't using all the capacity that's available to them, McKinney said.

"There's only a small percentage of customers who come even close to making extensive use of a 100Mbps service today," he said.

With this in mind, he said he could imagine that few people would actually need 1Gbps of data capacity.

"With 1Gbps of data you could watch 400 HD movies simultaneously," he said. "Or you could stream 100 4K Ultra HD videos at the same time. There is nothing out there today that could manufacture that kind of bandwidth."

Google is building for the future
So why then is Google even offering that much capacity to consumers? Milo Medin, head of the Google Fiber project and a former executive and co-founder of @Home, a company that pioneered broadband in its early days, said recently at the FTTH Council meeting in Kansas City that such speeds are about encouraging development for the future.

"We're trying to build a business for the next 10 years, not the last 10 years," he said. "I remember a time when people thought that they'd never use 5Mbps of service. Now you do that streaming a couple of movies."

When pushed on this point, Medin told me on the sidelines of the conference in Kansas City that it costs Google the same amount of money to offer a 1Gbps service as it does a 100Mbps or 50Mbps service. With this in mind, he wondered, "Why not give consumers more capacity than they could dream of using and see what happens?"

For Google, it's not just about offering consumers access to faster broadband speeds. It's also about offering those services at an affordable price.

And here is where the cable industry and Google differ most dramatically, said Blair Levin, executive director of Gig.U, a coalition of universities looking to bring gigabit-speed broadband to college towns across the U.S. Levin, who also led the development of the Federal Communications Commission's National Broadband Plan, said that the cable industry's business model, like most business models, was built to deliver the minimum amount of a resource, in this case bandwidth, at the maximum price for consumers. And as a result, it makes sense for cable companies to segment customers based on bandwidth needs, he explained.

In contrast, Google's business model is about how to deliver essentially unlimited data for an affordable cost. This makes sense given Google's core business. Google provides Internet services that rely on fast networks to connect millions of users to its services. The faster the networks, the more eyeballs the company attracts to its services and the longer those customers spend online, which generates higher advertising revenue for Google.

Levin says he doesn't fault the cable companies and phone companies for sticking to their traditional business models. But he argues that the model that will deliver the most benefit to the U.S. economy in terms of innovation is a business model, like Google's, which is based on abundance rather than one based on a resource scarcity.

"If America wants to lead in the bandwidth delivered economy, consumers need to enjoy a psychology of bandwidth abundance," he said. "That psychology encourages innovation on both the supply and demand side. We should want to make sure that bandwidth availability and price is not a constraint on innovation."

In other words, Levin says that cable's argument boils down to accepting that it is sufficient to follow consumer demand for bandwidth. But what the National Broadband Plan called for, and what communities offering gigabit-speed services have so far shown, is that there are great benefits to society when consumers have access to more bandwidth than they could ever imagine needing.

As Levin put it in a recent speech he gave: "Consumers never ask for products they don't know about; innovation comes from the unknown. No consumer in 1900 asked for a radio, a television, or a personal computer. And as Henry Ford noted, if he had asked consumers what they wanted, they would have said faster horses."

So even though Comcast's Roberts says he wants his industry to encourage innovation, unless his company and others in the industry make their superfast services more affordable, as Google has done, that innovation is likely to happen at a much slower pace.

We'll see if Roberts follows through with his bold claims. One thing is certain: Google Fiber isn't going away.