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AT&T May Attempt Price War With Google Fiber

Tickers in this article: GOOG NFLX T TWC VZ

Updated from 12:12 a.m. E.T. to reflect AT&T comment and additional data throughout

NEW YORK ( TheStreet) -- The CEOs of telecom, media and technology giants have often been referred to as moguls because of their spendthrift acquisitions and proximity to Hollywood and music industry celebrity. Increasingly, however, it seems that they are now bracing for trench warfare in a fast-changing TMT space that could require the skill set of a wartime general.

No front appears to be a better leading indicator of brewing unrest throughout the sector than Google's launch of a one-gigabit high-speed fiber network in select cities such as Kansas City, Mo. Analysts and some investors have speculated that traction with Google Fiber, a so-called virtual multiple systems operator (MSO), could eventually undercut traditional Internet service providers (ISPs) and lead to the un-bundling of cable TV packages.

The scenario of a nationwide virtual MSO -- or at least one with scale in most major metropolitan areas in the U.S. -- could be the foundation for the rise of a la carte media offerings from the likes of Netflix , Amazon Prime , Apple and even Google. It could also chip away at the video bundles that drive revenue at ISPs such as Comcast, Time Warner Cable , AT&T and Verizon , while weakening the pricing power of Disney , CBS and Time Warner .

Google has moved quickly with its Fiber launch in Kansas City. Nevertheless, the offering has so far seemed more like a Cold War against the traditional media universe. Now, industry watchers may have a clear sign that a long-awaited melee is on the verge of breaking out.

On Tuesday, AT&T said it will launch a fiber-to-the-home service with 300 megabit speeds in Austin, Texas, this December that will be upgraded to 1 Gbps by 2014. AT&T's move into high-speed fiber is being taken by some analysts as trying to run in front of Google Fiber's 2014 deployment in Austin.

It could also amount to a price war waged by the telecom giant that might diminish the profitability a larger Google Fiber roll-out and possibly cause the internet-search giant to rethink its virtual MSO strategy.

"This is clearly a reaction to Google's build out of its fiber network and service in Austin, with service expected to start in late 2014," Carlos Kirjner, a Bernstein Research analyst, wrote in a Tuesday client note. He noted that it makes the business case for Google Fiber in Austin harder, with the caveat that much will depend on AT&T's pricing and the specifics of its offering.

Google Fiber is likely to offer its 1 Gbps service and a set of pay-TV channels in Austin for $120 a month, similar to Kansas City where the service has seen strong signs of adoption. Will AT&T in rolling out a competing service try to undercut that pricing package? If so, Kirjner says that what looked like a profitable virtual MSO offering with internal rates of return in excess of 30% could become a far more economically challenging proposition in a larger rollout.