Portland May Have Finally Cleared a Path for Google Fiber

While Portland has been on the sidelines, Google Fiber has committed to serve eight other U.S. cities. For customers in Oregon awaiting Google, the 24-month delay has been exasperating and bewildering.

by Mike Rogoway, The Oregonian, Portland, Ore. / February 29, 2016

(TNS) -- Google Fiber's road to Portland has included a pair of city council votes, two bills in the Oregon Legislature, nearly a year of state utility rulemaking, and an unfavorable state Supreme Court ruling that nearly derailed the whole thing.

Now, two years after Google Fiber first announced interest in serving Portland, the way looks nearly clear. Utility regulators vote Tuesday on whether the company qualifies for a tax exemption created specifically for its high-speed service.

While Portland has been on the sidelines, Google Fiber has committed to serve eight other U.S. cities. For customers in Oregon awaiting Google, the 24-month delay has been exasperating and bewildering.

For Google, though, clearing the field of regulatory obstacles may have been what it really wanted all along.

"Google Fiber still has something of the feel of a science experiment to it," said Craig Moffett, a nationally known telecommunications analyst who has followed the company's rollout closely.

What Google really wants is to promote high-speed Internet access, anticipating faster connections will enable more online services – Google's primary business. By experimenting with a number of different rollouts, in various cities with distinct legal and regulatory conditions, Google is setting a precedent for how to build super-fast networks.

And in the two years since Google began eyeing Portland, Comcast, CenturyLink and Frontier have all announced plans for significantly faster connections for their Oregon customers. Comcast and Frontier have each applied to take advantage of the same Oregon tax breaks Google is seeking.

"Google's ambition seems to be primarily to create broader regulatory and policy precedents, not to provide service per se to a particularly large number of people," Moffett wrote in an email commenting on Portland's experience.

Google Fiber runs high-capacity fiber-optic lines directly to customers' homes to provide Internet service at 1 gigabit per second, 40 times faster than the current federal broadband standard. That's much faster than almost any residential customer needs today, but Google hopes faster speeds will enable new online services.

It typically charges $70 a month, which is more expensive than slower connections from other companies but considerably cheaper than similar speeds from other companies. And unlike its rivals, Google's pricing is transparent – it doesn't subject subscribers to substantial rate hikes after introductory periods.

Regardless of Google's ambitions, it wants to put a cap on its costs. Portland estimates it will cost Google $300 million to build its fiber network in the city. It'll cost a lot more than that if Google adds on suburban communities it's also considering, including Gresham, Tigard, Lake Oswego, Beaverton, Hillsboro and parts of unincorporated Washington County.

An unusual Oregon tax may be the major factor that delayed the company's Portland rollout. The Oregon Supreme Court ruled in 2014 that cable TV and Internet companies are subject to "central assessment," a rare practice dating to the 19th Century that levies property taxes based partly on the value of certain companies' brands.

Applying the tax to Google would have added millions of dollars – perhaps tens of millions of dollars – to its annual operating costs, and the company threatened to drop its Portland plans if Oregon lawmakers didn't exempt it from the tax. The Legislature complied, and the Oregon Public Utility Commission votes Tuesday on Google's eligibility for the tax break.

Google declined to comment in detail on the Portland market, except to note the company has continued to map the network and make plans to build it.

"We are working closely with city leaders to determine if we can bring Google Fiber to the Portland metro area, making progress in areas ranging from permitting to construction planning to digital inclusion," said Chris Taylor, hired last year as Google Fiber's Portland manager. "We continue to move toward a decision and look forward to sharing an update soon."

Fiber networks take a long time to build, so even if Google greenlights Portland in the first half of this year, it's unlikely service would be available anywhere in the city before late 2017 or early 2018. It could take several more years to build out the network into the suburbs.

As Google Fiber has rolled out cities elsewhere, it's adopted a variety of models – taking over existing networks, targeting only apartments or building a network from scratch. Just this week, Google announced plans to serve Huntsville, Alabama, using fiber built by the local electric utility, and parts of San Francisco using other companies' existing fiber.

"The markets that they've chosen seem to be carefully selected almost as experiments to see what works and what doesn't," Moffett said. "They all have a certain showcase feel to them, as if the point isn't so much to see if they can make money so much as it is to showcase what is and isn't possible."

That's probably right, said Mary Beth Henry, director of Portland's office of Community Technology and the regional point person working with Google Fiber.

"They are a company that tries things and learns," she said. "I don't think they're afraid to change a recipe."

In Oregon, then, Google has learned a lot. But while Henry said she remains optimistic on the company's plans for Portland, she said it has made no promises.

"All I can do," she said, "is just keep working at it."

©2016 The Oregonian (Portland, Ore.) Distributed by Tribune Content Agency, LLC.