Right now, the traditional ISPs are Augustus Gloop, blocking the pipe for the rest of us. According to a report from the Communication Workers of America, the U.S. currently ranks 28th in terms of global Internet speeds. "The US has not made significant improvement in the speeds at which residents connect to the Internet," the report said. "Our nation continues to fall far behind other countries." The more Americans surfing the web with ease, the more ad revenue Google can generate.
More directly, Google (GOOG) has been involved in conflicts with carriers like AT&T (T) and Verizon (VZ), who want to charge more to for services like YouTube that use up a lot of bandwidth. If Google can demonstrate that cheap high-speed access is possible, the argument that they should start paying more for service goes out the window.
Some folks, like my BNET colleague Erik Sherman, worry that having Google in the ISP game will hurt consumers, eroding privacy and service. I'm not buying it. If their service is a stinker, people won't adopt it. Certainly, being a carrier shouldn't allow Google unfettered access to people's data, but since no one knows yet how Google will manage the data flowing through their pipes, I'm inclined to wait and see.
The folks who should be worried are the traditional telecoms. "When Google enters a market, it usually destroys traditional ways of making money. ISPs want to find ways to measure internet traffic, and charge users by levels -- even as their own upstream bandwidth costs continue to plummet," writes Ryan Singel over at Epicenter. "The rhetoric used to justify those decisions to consumer and lawmakers just won't hold up if there's an fairly priced, all-fiber 1 Gbps connection just down the road."
These same companies have been trying to block the expansion of broadband to rural areas, a criminally self interested tactic. By offering this infrastructure directly to municipalities, Google is cleverly sidestepping the national telecoms and potentially laying the foundation for a new model in which Google finances the expansion of high speed access on a local level and reaps the benefits through increased connectivity.