Memo 2

To: Pricing Manager, Austin From: Vice President, MarketingRe: Google Fiber

As you are aware, Google has been entering select markets with its Google Fiber service

that competes directly with our high-speed data and video services. Even though its

market penetration has been moderate, Google has deep pockets and excellent brand

awareness. As a result, we are paying close attention to markets that it is entering.

Within the last year, we completed our own fiber upgrade in the area at a cost of a little

over $550 million. We are able to provide our high-speed data and video, and have a large number of bundled customers for our products. Unfortunately, many of them have

been with us for a while and are no longer under any contract to remain with us. With Google's entry, (along with existing competition) we may need to reduce our prices. The

Austin service area for our services includes 340,000 households. Currently, in neighborhoods where Google competes, we provide bundled services that average $120

per household per month.

In addition to monthly costs associated with the $550 million (which is being amortized over 15 years at 6.0 percent), agreements with program providers stipulate that we pay them $41.50 per subscriber per month. In addition, we have maintenance, service, and

billing costs of $9.20 per subscriber.

I am concerned that increased competition will lead to a price war, and that prices may get to unprofitable levels. If things turn really bad, we may need an exit strategy from this market. How low should we be willing to go with our prices before it makes sense to exit

the Austin market?

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how low the company should be willing to go with pricing, before it makes sense to exit the Austin market