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Why Major Job Cuts Could Be on the Way at Google Fiber

August 25, 2016, 7:18 PM UTC
Google Brings Quirk And Clout To New DC Digs
A Google Inc. Fiber display is shown at the Google office in Washington, D.C., U.S., on Tuesday, July 15, 2014. Google's presence in Washington is necessitated in part by the Federal Trade Commission and U.S. Justice Department inquiries into how the company obtains and uses private data. Additional privacy and safety concerns are likely to arise from Google projects in the works, including nose-mounted Google Glass computers and self-driving cars. Photographer: Andrew Harrer/Bloomberg via Getty Images
Photograph by Andrew Harrer — Bloomberg via Getty Images

Google’s ambitious effort to wire up homes with fiber optic connections to offer gigabit speed Internet and cable TV service has been regrouping of late. After expensive deployments in a few cities, Google has been delaying new rollouts while its explores cheaper methods, such as wireless, to connect customers.

Now comes word, via a report on The Information, that the entire fiber effort has fallen far short of expectations. Initial plans in 2010 under then-CFO Patrick Pichette contemplated attracting five million customers within five years, the web site reported citing anonymous sources.

But by the end of 2014, only 200,000 customers had signed up and the current total remains “well short” of the early expectations, though exact figures were unavailable, the web site reported.

In addition to previously reported delays and the search for cheaper installation strategies, Google has also ordered current Fiber CEO Craig Barratt to cut half of the effort’s 1,000 person team, the web site said. The expense of connecting new customers has also come in far above early projections, the web site said.

In essence, Google appears to be running into the same economic challenge—sometimes called the last mile problem—that has bedeviled many earlier efforts to compete with monopoly cable and Internet providers at the local level. Dozens of upstart carriers went bankrupt in the 1990s and early 2000s trying to break into the local telecommunications and cable markets.

More recently, Verizon Communications’s (VZ) FiOS and AT&T’s (T) U-verse efforts to wire homes for Internet and cable TV access ran into economic challenges and have been scaled back.

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Now Google (GOOGL) has halted efforts to offer its service in San Jose, Calif., and Portland, Ore., while it explores new connection technologies.

Earlier this month, Google filed with the Federal Communications Commission to try a high-band wireless solution in up to 24 cities. Using wireless technology to send Internet signals likely would be much cheaper than wiring up individual homes. But high-band signals do not travel far and have difficulty penetrating deeply into buildings.

Google’s parent, Alphabet, has never officially disclosed how many customers its Fiber unit has or any specifics about its financial results. The unit is lumped in with many projects as parts of the company’s “other bets,” which had revenue of $185 million and an operating loss of $859 million in the second quarter.

Google did not immediately reply to a request for comment from Fortune.