Google's Goals: Lower Costs and Greater Data-Transmission Competition

Trans-Pacific link could give Google leverage against telco's ability to control markets and prices

Robert Poe on October 4, 2007

Recent attempts by Google to obtain some type of raw telecommunications capacity — first "dark" optical fiber, then wireless spectrum and most recently, undersea cable capacity — has observers far and wide speculating that the search giant's fondest hope is to become a telecommunications company. A closer reading of the facts, however, leads one to a different conclusion: Google would rather undermine the dominant telecom companies. It just happens to be using the purchase of capacity to do so.

The undersea-cable reports started with a CommsDay.net article, which stated that Google was a partner in a planned trans-Pacific optical-fiber cable called Unity. The New York Times and almost every other publication with some interest in technology picked up the news and ran with it. Many speculators saw the report as yet more evidence that Google plans to become a phone company.

That's sort of like saying that the existence of Google News proves that the Internet company wants to get into newspaper publishing. It's more accurate to say Google wants to be an anti-phone company, which means doing a lot of the same things phone companies do but for opposite reasons. Phone companies act the way they do because they want to keep prices high and competition limited. Google wants to keep those factors low and unlimited, respectively.

The company's purported cable involvement illustrates both why Google thinks it needs to do those things and how it can do them. To start with, the search company sends many terabytes of data all over the world each day. The cost to send a given amount across the Pacific Ocean is three to five times the cost to send it across the Atlantic Ocean, according to international telecommunications research firm TeleGeography. But the Pacific cables aren't three to five times as long or that much more expensive to build.

In fact, there is plenty of "unlit" optical-fiber cable capacity across the Pacific, according to TeleGeography analyst Eric Schoonover. Unlit, or "dark," capacity denotes installed optical fibers without the equipment to send and receive the light pulses that represent the data attached at each end. Lighting dark fiber admittedly costs considerable money. But India's Videsh Sanchar Nigam Ltd. (VSNL), which owns a lot of the lit and unlit trans-Pacific capacity, bought much of it at fire-sale prices several years ago from Tyco International Ltd. following the latter's scandal-plagued bankruptcy, according to Schoonover. That means its overall cost for lit capacity shouldn't be excessive.

Faced with such facts, any sensible search engine might reach one of two conclusions: Either Atlantic prices are too low, or Pacific prices are too high. If it concluded the latter, as Google apparently has, its next step might be to try to bypass commercial trans-Pacific capacity suppliers and become its own wholesale provider. That's exactly what the Unity cable would do.

If Google and its partners build the cable, the Internet company will get capacity at cost. It could also offer (or threaten) to sell capacity to others at or near cost. That would force the existing cable operators to drop their prices, benefiting everyone except the operators. (An added bonus would be that Unity would compete with a planned cable that Verizon, Google's deadly enemy in the Net neutrality battle, will participate in.)

All in all, a cable move would be a simpler, clearer version of what Google is trying to do with its potential bid in the auction for 700 MHz U.S. wireless spectrum scheduled for January, 2008. In both cases, the company wants to decrease the dominant operators' ability to control markets and prices. And in both cases, it's attempting to do so by buying and using capacity — cable or spectrum — to undercut those operators.