Google joins the international bandwidth capacity game

Over the weekend, the story attracted a great deal of US media attention after Google stock hit an all-time high in the hours after Commsday broke the news.

Google is now valued at US$174 billion and thus accounts for more than half of the total $330 billion market capitalisation of American-listed internet information providers, easily outdoing the next largest in its sector – Yahoo - that is valued at just US$35 billion. Like it or loathe it, Google is truly corporate phenomenon, and is worth in excess of US$50 billion more than the world’s most valuable telco, Verizon.

One of the best things about having a story hit the US tech blogosphere is the instant feedback mechanism it provides - so as our article was cited by the likes of the New York Times, Techcrunch, Slashdot and Broadband Reports’ websites there is no shortage of reader and blogger comments on what it all means.

Apart from the typical take that Google is “going-to-take-over-the-world-and-save-us-from-rapacious-telecoms-companies and/or- the-dreaded-Microsoft”, some took a more nuanced view and consider the reasons why Google is getting into the capacity commodity game by building its own cable.
 
For example, Stuart Corner at ITWire writes, “If Google believes it can get a sustainable cost advantage by investing in a network, it may well do so. But there are a number of other new systems planned already. Technology advances rapidly. It seems more than likely that Google will be best able to meet its needs by relying on a healthy market with strong competition and investing its money in businesses that are centred around content and services and in which it can leverage its intellectual property and its massive access to end users, not raw connectivity.”

The problem with this view is that Google has, apparently, already tried and failed several times to get a satisfactory price on capacity from existing trans-Pacific cable providers. The company certainly understands the unit costs of fibre networks as it already owns such infrastructure in the continental United States and, as the world’s Internet leviathan, is reportedly frustrated that it can’t get a decent price on the trans-Pacific route – although that is hardly surprising given that most of the capacity on such pathways is controlled by the very Tier 1 telcos that regard Google as a freeloader and undeserving beneficiary of much of the value of the Internet economy.

Google doesn’t want to build a cable to sell bandwidth to third parties (although that could be a natural consequence and corollary of its plans), but because, as a voracious generator and recipient of Internet traffic, it wants to control its own destiny .
 
And as our Friday report indicates, Google doesn’t want to build the cable unilaterally. Rather it would much prefer to share the price of construction and deployment with consortium partners so it can gain access to a fibre pair on a true cost basis, rather than paying marked-up retail rates.

Google is notoriously opaque in explaining its thinking to media and analysts. Indeed, when asked to comment on our Unity cable story the company did little more than observe that there’s a lot of ocean out there!

That might be fine as a response to the press and media but the company can't be so cavalier in the regulatory filings it must make in support of its stock listing. Hidden away in those are pointers to the fears and paranoias of a company with runaway sales growth and a stratospheric share price.

Thus it is in the section of Google's quarterly filings dedicated to risks to the company that the concerns acting as drivers behind the the cable plan are actually articulated.
 
To quote, in part:

• “We rely on bandwidth providers, data centers or others in providing products and services to our users, and any failure or interruption in the services and products provided by these third parties could harm our ability to operate our business and damage our reputation.”

• “We rely on vendors, including data center and bandwidth providers. Any disruption in the network access or co-location services provided by these providers or any failure of these providers to handle current or higher volumes of use could significantly harm our business. Any financial or other difficulties our providers face may have negative effects on our business. We exercise little control over these vendors, which increases our vulnerability to problems with the services they provide.”

• “Our products and services depend on the ability of our users to access the internet, and certain of our products require significant bandwidth to work effectively. Currently, this access is provided by companies that have significant and increasing market power in the broadband and Internet access marketplace, including incumbent telephone companies, cable companies and mobile communications companies.