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Alphabet’s Capital Expenditure on Google Fiber Is Growing

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Jun. 2 2016, Updated 6:06 a.m. ET

Capital expenditure in the “Other Bets” segment has grown fivefold in the last two years

Alphabet’s (GOOG) Google Fiber business is a part of the “Other Bets” segment, in which the company continues to make large investments. As the chart below shows, the company’s capex (capital expenditure) in the Other Bets segment has grown fivefold in the last two years from $187 million in 2013 to $869 million in 2015. Other than Google Fiber, the Other Bets segment consists of the so-called moonshot businesses such as Loon, Verily, and Nest. However, the company allocates the majority of its capex under the Other Bets segment to Google Fiber.

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Alphabet is also spending on building data centers for cloud

Google Fiber is a high-speed Internet service with a maximum speed of 1 Gbps (gigabit per second). However, according to the Netflix ISP Speed Index, as of April 2016, its prime-time Netflix performance is 3.5 Mbps, which ranks Google Fiber in 16th place. The services of major players such as Verizon Communications (VZ), Cablevision Systems (CVC), Charter Communications (CHTR), and Comcast (CMCSA) are ranked higher than Google Fiber.

Alphabet also continues to spend on its core Google segment, and it spent $8.9 billion last year. Under the Google segment, one of the largest capex areas is building and maintaining data centers for its cloud service. Google plans to add 12 new regions around the world for its cloud service. This expansion will be important for Google if it wants to challenge the likes of Amazon (AMZN) and Microsoft (MSFT) in the cloud services market.

In the next article in this series, we’ll discuss how the company is enhancing its Google Play service.

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