In April, when Google announced that it had decided to bring its superfast Google Fiber Internet service to Austin, you could almost hear the city’s population toggle over to Facebook en masse and click “Like.” Two years earlier, after more than a thousand communities had entered the contest to be the first to get Fiber, the so-called Silicon Hills had lost out to, of all places, Kansas City, Missouri. So the announcement that Austin would receive Fiber in mid-2014—making it the third locale to get the one-gigabit-per-second service, after Kansas City and Provo, Utah—was welcome in the heavily wired tech mecca. Finally, this self-styled city of the twenty-first century was getting some love from the most iconic company of the twenty-first century. “This is the city that has SXSW Interactive and where Twitter blew up,” says Toni Grasso, an administrative manager in the Office of Programs and Partnerships at the Austin Public Library, which is slated to receive free Google Fiber. The service will help transform the library into “a library of the future,” she adds.
But a funny thing happened on the way to the Austin-Google love fest. In October, AT&T—yes, Dallas-based AT&T, a.k.a. your granddaddy’s telecom company—announced it would beat Google to the punch by bringing its superfast GigaPower service to select Austin neighborhoods at the tail end of 2013.
What AT&T is selling isn’t quite on par with Google—yet. For now, customers in carefully chosen neighborhoods get a souped-up version of its U-verse service that clocks in at three hundred megabits per second, with plans to boost the service to one gigabit per second later this year. By comparison, conventional broadband Internet speeds are about ten to thirty megabits per second, so it’s a significant upgrade. “They’re not here yet,” Dahna Hull, who’s overseeing the GigaPower rollout for AT&T, says of Google. “We have been here for one hundred and thirty-five years.”
Today’s AT&T, after all, is in a sense the descendant of the local phone operator Southwestern Bell. Following a federal judge’s order to break up the Bell System in the early eighties, Southwestern Bell changed its name to the spiffier SBC Communications and moved its headquarters from St. Louis to San Antonio and then to Dallas, snapping up other former Bell brethren—Pacific Telesis, BellSouth, and ultimately AT&T—along the way. Then-CEO Ed Whitacre, an Ennis native and Texas Tech grad, led the buying spree, giving the company a bit of Texas swagger. Still, much of the company’s business remained rooted in the landlines of the past, and it struggled in the wireless market against fleeter-footed rivals such as Verizon.
In recent years, though, the company has begun to shrug off its “reach out and touch someone” reputation. In 2006 AT&T launched U-verse, which delivers Internet, television, and phone service on broadband lines, making the company more competitive with cable, which had been horning in on the phone market. And under Whitacre’s successor, Randall Stephenson, it made its most transformative deal in 2007, when its wireless division became the exclusive carrier of the first generation of iPhones. At the time, many of the tech elite panned the choice because of AT&T’s balky network (“AT&T: The Most Hated Company in iPhone Land,” read the CNNMoney.com headline), but the deal has certainly worked out for the company, which during the course of its four-year exclusivity agreement managed to briefly pass Verizon in annual wireless sales.
With GigaPower, AT&T is, in some ways, returning to its roots, completing the job it began by stringing wires across the nation more than a century ago. These days, most Internet data zips along high-speed fiber-optic networks, then slows down when it reaches the “last mile”—the local connections that link homes and businesses to the fiber networks. Those connections are old-fashioned copper wire, which drastically limits bandwidth. Ultrafast Internet service like GigaPower, by contrast, runs on fiber all the way to your modem.
Given Austin’s history for pioneering technology, the city would seem to be an ideal test bed for this service. Back in the eighties, the city was chosen as the headquarters of Sematech, the chip-making consortium that led to countless breakthroughs in high-tech manufacturing. Homegrown Dell cemented Austin’s tech cred, and other tech companies—Motorola, Apple, Advanced Micro Devices—noticed the concentration of skilled workers and moved in. During the dot-com boom, the Silicon Hills was awash in venture capital, and young entrepreneurs lingered along Congress Avenue with business plans in their back pockets.
But the dot-com and PC busts took their toll. Sematech chose New York for its latest international research center, and Dell has fallen on hard times. Austin has tried to keep up appearances through the wildly successful SXSW Interactive conference. (Which, in fact, did not actually launch Twitter; though SXSW was critical to promoting the service, it was actually launched nine months earlier.) On Forbes magazine’s 2010 list of the most-wired U.S. cities, Austin ranked twentieth, trailing minor metros such as Columbus, Ohio, and Charlotte, North Carolina. And while Austin prides itself on a “creative class” of software start-ups, that too has been slow to bounce back from the dot-com bust. According to a recent study by the Ewing Marion Kauffman Foundation ranking the best metro areas for high-tech start-up density, Austin dropped from number three in 1990 to a less world-beating number ten in 2010. Even so, that’s good enough to have kept Austin on the short list for Google Fiber. “Austin globally is known as a mecca for diverse and creative people who are tech-savvy,” says Google spokesperson Jenna Wandres.
AT&T, though, wasn’t about to let a rival stake a claim in its home state. Or at least that’s the way the dueling marketing campaigns have played out. Because as much fun as it may be to watch an old codger smack down a relative upstart, things aren’t always as they appear. The fight between the two companies is, to some degree, staged. Google probably isn’t interested in being in the fiber business; upgrading the last mile in cities across the country will cost billions, and the company has no plans to offer Fiber anywhere other than Kansas City, Provo, and Austin. What Google presumably wants is for other companies to spend a lot of money to provide faster Internet service. That way, Google will have a better platform for its web-based businesses (especially advertising), which is how it really makes its money. Google Fiber is likely intended to goad companies such as AT&T into stringing those wires.
And that’s exactly what’s happening. AT&T is only the first company through the gate. Time Warner Cable, which already offers Internet speeds of up to fifty megabits per second, has also vowed to step up its game in Austin (and presumably elsewhere). And those companies have every reason to expect to get a good return on their investment. “AT&T’s choosing of Austin is the cherry pie of cherry-picking,” says Susan Crawford, a former science and technology policy adviser to President Barack Obama and the author of Captive Audience: The Telecom Industry and Monopoly Power in the New Gilded Age. “There is enormous appetite in Austin for a fiber product.”
AT&T has targeted the Austin neighborhoods French Place, Mueller, and Zilker, where it knows there’s significant demand because they are filled with young, tech-savvy families. Other neighborhoods that want GigaPower will have to go to AT&T’s website and vote for it. The company will then count the votes, look at its existing infrastructure, and decide on the next recipients. Of course, the neighborhoods where a lot of people vote for GigaPower are likely to be neighborhoods where people can afford to buy GigaPower. The service costs about $70 a month, $120 if you add television—a significant premium over a typical broadband service, which may cost $65 for TV and a twenty-megabits-per-second Internet connection. If you thought the digital divide between rich and poor was already bad, it’s about to get blown wide open. (There is, unsurprisingly, a catch. According to the fine print, you have to agree to let AT&T use your web-browsing information—the search terms you enter and the web pages you visit—to provide you with customized ads. The company’s slower broadband offerings don’t have that requirement.)
Lest the Austinites in those lucky neighborhoods get too smug about having some of the fastest Internet speeds in the country, here’s a reality check: they will still be turtles in the digital world. Many parts of Asia and northern Europe already have a fiber infrastructure that is faster and cheaper than what AT&T or Google is offering. Most new homes in China, for example, are being wired for fiber. In Japan Sony recently began rolling out its Nuro service, which offers download speeds of as much as 2.5 gigabits per second—two and a half times as fast as GigaPower or Google Fiber—at a cost equivalent to around $50 a month.
Part of the problem is that while many other countries see high-speed Internet as an essential utility for the modern age, Americans still view it as a luxury. “This is the most important input into twenty-first-century businesses, yet we are stumbling along, waiting for these mammoth companies to decide that it’s in their best interest to make these upgrades,” Crawford says.
A hundred years ago, electricity too was considered a luxury, and its deployment was controlled by a handful of large companies. Less-populated areas were left in the dark. Only after politicians like Lyndon Johnson championed rural electrification were co-ops and municipal-owned utilities formed to bring electricity to everyone.
AT&T and Google’s race to your front door may seem like a showdown that will drive innovation, but even after they lay down every fiber line they can in Austin—assuming they even bother to wire the less-affluent neighborhoods—the city will still lag behind much of the developed world. So much for the Silicon Hills.
LOREN STEFFY IS A SENIOR WRITER FOR THE COMMUNICATIONS FIRM 30 POINT STRATEGIES AND A CONTRIBUTOR TO FORBES.