I'm pretty confident that AT&T looked at their cancellation rate as Google Fiber deployed in the Kansas City neighborhoods and saw their subscription base drop by a large enough margin to be a problem. Their response to the Kansas City market appears to be "Send more junk mail!" but nothing else. No announcements of competing service, no advertised price cuts, or increases in bandwidth. I don't know what exec was asleep during the Google build out but, Google publishes the percentage of pre-subscribed households per neighborhood and AT&T's sound indifference did nothing to dampen that.
Google is only in a few locations - but the locations they announce they follow through on in a reasonably transparent fashion. They announced KC, then the neighborhoods, then the signups, and now they're connected and committed. They've also expanded into surrounding municipalities not initially included in the announcement. Google may not seriously expand into the ISP business but from where I sit in a connected home it's tough to call it a demo location. Basically, I trust Google's proven history and measured, careful announcements over AT&T's regular press releases stating that they might do something.
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I really enjoyed calling up to cancel after Google connected our house.
"Why are you cancelling?"
"I found a better service."
"Can I ask what?"
"Sure, I found 1,0000 Mbps for $70/mo"
"Well. I can offer you 14Mbps for $40/mo"
They followed up with a letter just yesterday saying how they were surprised I canceled since they have such a great service and offering a $300 gift card for re-upping. As far as I can tell they have no strategy for dealing with competing fiber rollouts and Austin doesn't sound like one either.
I found it odd that the fine print just says iPhone 3G upgrades are spendy and I took a look at ATT's upgrade page for my account. Right now I'm being offered an upgrade to the existing 16G 3G iphone for $299. It's not cheap, but it's not as expensive as the fine print reads either. FWIW I've got one of the first gen Edge iphones, so perhaps that clause doesn't apply to me!