How much should Google be subsidized?

Pending FCC policy proposals in the National Broadband Plan and the Open Internet regulation proceeding would vastly expand the implicit multi-billion dollar subisidies Google already enjoys, as by far the largest user of Internet bandwidth and the smallest contributor to the Internet's cost relative to its use.

Interestingly, the FCC's largely Google-driven policy proposals effectively would:

  • Promote Google's gold-plated, 1 Gigabit broadband vision for the National Broadband Plan at a time of trillion dollar Federal budget deficits;
  • Recommend a substantial expansion of public subisidies for broadband that would commercially benefit Google most without requiring Google to contribute its fair share to universal broadband service; and
  • Regulate the Internet for the first time in a way that would result in heavily subsidizing Google's out-of-control bandwidth usage. 

I.   Does Google need more subsidies?

Google is one of the most-profitable, fastest-growing, cash-rich companies in the world, with over $10b in annual free cash flow, 17% revenue growth, and ~$25b in cash on hand.

  • Google dominates search advertising, the primary means for monetizing digital content online.
  • Google is also the world's #1 brand, and controls the world's largest: audience and networks of advertisers and web publishers.

Google does not need any subsidies.

II.   How much is Google currently subsidized?  

Broadband subsidies: Google uses an estimated 21 times more Internet bandwidth than it pays for, implying an implicit subsidy of $6.9b annually to Google per Precursor's formal estimates. Google has yet to offer its own estimates of its Internet usage and costs.

  • The most recent Arbor Networks study of Internet traffic subsequently confirmed Google as the world's largest user of Internet bandwidth.

Shortchanging Taxpayer: The Google lobbied-for open access restrictions on the FCC's 700 Mhz wireless auction cost the American taxpayer ~$7b in lower auction proceeds, according to Precursor estimates at the time.

Hidden Tax Breaks: Per the Charlotte Observer, Google secretly extracted $89m in taxpayer subsidies from the very-distressed city of Lenoir, North Carolina in order to locate one of Google's data centers there.

  • Google is also non-transparent to its shareholders about how many data centers it operates, where they are and how much states/cities subsidize them.

Special Treatment: Google is the only U.S. company allowed to park their private airplane fleet at a taxpayer-funded Federal government airport, NASA's Moffet Field, which is conveniently just a few minutes drive from Google's Mountain View headquarters.

Cybersecurity subsidies: Per the Washington Post, Google is the only American company seeking formal help from the U.S. National Security Agency (NSA) to protect its networks, even though dozens of other U.S. companies are subject to the same cyber-security attacks and costs facing Google.

  • All other American companies understand that it is their own corporate financial responsibility to fund sufficient cyber-security operations, not the Government's.  
  • It is not U.S. taxpayers' responsibility to subsidize Google's security negligence
  • Moreover, all this occurred several months after President Obama warned everyone of much heightened cyber-security threats and after it was repeatedly highlighted that "security is Google's Achilles Heel."  

Given how heavily Google is subsidized by others, it is not surprising that Google is completely non-transparent about it.

  • Nor should it be surprising that Google is seeking even more massive subsidies for itself in the name of good public policy.     

III.  What additional subsidies is Google seeking?

In Google's announcement of its 1 Gigabit broadband testbed for 50,000 people, Google sheepishly said: "...through our trial, we hope to make a meaningful contribution to the shared goal of delivering faster and better Internet for everyone." The strong implication here is that Google is well aware that it has yet to make a "meaningful contribution" to universal broadband.

  • Tellingly, Google's supposed "meaningful contribution" is about advancing Google's commercial agenda, not universal broadband.
  • Google is the only commercial interest publicly lobbying for a 1 Gigabit network, because Google is the only company that could make money off it, assuming they could get others to subsidize Google and build such an ultra-fast broadband network for Google's use.
  • Let's review the related facts, it is only Google that is systematically pushing to make the web faster, because only Google has grand ambitions and actual plans in progress for streaming, crawling and copying all the world's information -- that could possibly use and profit from a national 1 Gigabit broadband network.
    • Richard Bennett shares the dirty little secret here: "there's no application on the near horizon that can take advantage of the speeds above 25 Mb/s for episodic access or above 10 Mb/s for streaming."
    • Ironically the only real drivers of Google's largely fantasy "Field of Dreams" view: "If you build it, they will come," has generally been the traffic explosion of illegal p-2-p downloads of pirated copyrighted content, and Google's dominant Youtube, which streams ~15 times more Internet video than anyone else. 
  • Let's also review the facts that Google long ago bet its business model on wasteful use of Internet bandwidth via arbitrage and on Google's inherent engineering bias for bandwidth over storage in their architecture design. 
    • Consider this extremely interesting fact about Google's grand Internet architecture bet recounted in the book "Inside Larry and Sergey's Brain" by Richard L. Brandt, see page 83: 
      • Google's cofounders' "argument was that there was a huge amount of fiber-optic cable lying unused since the dotcom crash, and if someone started using that cable on the Internet, video could be streamed live, thus eliminating the need for temporary storage."
      • Translation: Google bet big as a business against the more network and ecosystem-efficient Internet architecture approach of caching video content close to the user.
      • Google rejected the efficiency enhancement of Akamai and others, and bet big that  fiber/bandwidth would always remain as cheap as it was because of the anomoly of the dotcom, CLEC, fiber crash of 2001-2002, which was when Google started out and designed its architecture.     
    • Just because Google bet its business model on the short term availability of cheap dark fiber after the tech bubble burst, does not mean that Google is forever entitled to cheap fiber going forward.
      • Most of Google's policy efforts promoting net neutrality and ultra-fast broadband are a grand industrial policy power grab to use regulation to make permanent a temporary and uneconomic market distortion that Google bet its business on several years ago.

Google's selections of cities for its 1 gigabit testbed trial will speak volumes about whether Google cares about getting broadband to all Americans or if is just a PR stunt to appear to care about universal broadband.

  • Will Google select wealthy, already-bandwidth -rich Seattle for a ultra-fast trial or will Google try to advance the National Broadband Plan's goal of quickly getting unserved and underserved Americans broadband?
  • If Google really cared about universal broadband it would not continue to heavily lobby the FCC for an exemption from having to contribute to universal service for broadband.  

The other huge implicit subsidy Google is seeking is in the Google-driven FCC Open Internet proposed regulations.

  • As Google Counsel Rick Whitt explained at the recent Free State Foundation conference, while the FCC's net neutrality broadband principles "took a consumer-centric approach," they did not address the concerns of companies like Google that did not want to have to pay any more for faster or more reliable service.
  • Google's massive hidden implicit subsidy in the FCC's proposed open Internet regulations is that it is acceptable for broadband providers to charge consumers more for faster service, but it is unacceptable for broadband providers to charge web companies like Google more for more speed.
    • The real and practical effect of this indefensible double standard is that consumers and normal bandwidth users must subsidize the cost of corporate bandwidth hogs, most especially Google, which uses more Internet bandwidth than anyone.
    • The FCC's unfair and unwise exemption of corporate bandwidth hogs paying their fair share of the Internet's costs would make permanent Google's current ~$7b annual subsidy by consumers, and let that massive corporate welfare grow much larger over time.
    • Why should a consumer have to pay more for more broadband speed and capacity, but Google should not?
      • How is that fair, sound or sustainable public policy that will get broadband to all Americans soonest?   

In sum, Google is more than the world's biggest bandwidth hog, it is the only bandwidth hog farming congolmerate in the world.

  • To date, Google's uniquely out-of-control bandwidth appetite has been heavily subsidized by everyone else.
  • The big open question going forward is how much longer will everyone else be willing to massively subsidize Google's largesse and dominance in such lean times?