Google Buys A Piece Of Transpacific Cable

23 thoughts on “Google Buys A Piece Of Transpacific Cable”

  1. Om,

    In a nutshell the amount of video and other applications is going to start weighing on the current infrastructure. I think GOOG is very smart in taking a pro-active approach here. Why? Because the RBOCS and MSO’s were/are going to attempt to hold GOOG hostage. After all, GOOG will always want the end user (consumer) to have a good internet experience and the RBOC’s and MSO’s are going to demand that GOOG pay for THEIR infrastructure upgrades or share some of the revenue to subsidize the continued infrastructure build out.

  2. Much of this could be about future peering potential, and quite possibly a desire by Google to become a Tier-1 network. Imagine the cost-structure advantages (aka profits) they could yield if they did not need to pay for network traffic, CDN services, etc. Owning some pipes gets them started down this path…

  3. One of the main drivers for wanting your own fibre on certain submarine routes is the pricing strategy of the owners of the submarine fiber. Traditionally these fibres have been owned by incumbent national monopolists. Their pricing was set at a fixed price per Mbit/s. If your banndwidth utilisation grew, their income grew too, though their costs didn’t, leading to excess profits. On the Transatlantic route this problem has been solved by having an oversupply of commercial competitive fiber. The oversupply resulted in a situation I call mutually assured destruction, where everybody went bankrupt and whole networks were sold for pennies.

    On the Pacific route it’s mostly incumbent national monopolists owning fibre and they probably have learned from the Atlantic disaster. This means prices don’t drop (or not as quickly as traffic growth) and that means that some parties see an increase in their traffic costs. Google now has solved this by joining a club of submarine fiber owners and not having to worry anymore about the cost of a megabit/s. Google just has to worry about when they will fill up their terabit chunk and when someone will slice through the fibre.

    BTW I’m willing to bet Google will join another club on this route to add some much needed redundancy. On my blog I delve deeper into the economics of submarine fibre (see link)

  4. Dear Om,
    I’m afraid that I beg to differ with your “good friend”, Alan. This is not the first non-telecom company to take an active role in ownership of a submarine cable. PIPE Networks is a major Australian ISP which is building its own cable from Sydney to Guam in order to achieve lower prices for its customers than it can by using the existing two main providers.

    Furthermore, I disagree with Alan that Google’s move does not indicate a possible influx of new entrants to the market. I suspect that there are a lot of major enterprises out there who believe that they are not getting the best deal for their bandwidth requirements. Google’s move will only encourage such companies to think harder about entering this market.

    However, we at Pioneer think that this is a really bad move by Google. There are a number of other competing transpacific cable projects out there and some, e.g. Transpacific Express and Asia-America Gateway are further advanced than the Unity project. Transpacific bandwidth prices are bound to fall over the next few years and there will certainly be plenty of capacity available.

    Your article and some of the commenters seem to believe that you invest in a cable and then its plain sailing from there. You have capacity at cost but you are forgetting that there is a significant ongoing cost (up to 5% per year of your original investment) for maintenance of the cable. This is certainly not a free lunch for Google.

    While we admire Google for its innovative thinking, we do not think that getting into the wholesale capacity market is going to add long-term value to the company. They should have just sat back and watched the wholesalers engage in a bloody price war, buying capacity opportunistically when they needed it. Moreover, Google may have set a trend which will see other non-traditional players entering the market and then a repeat of the boom to bust scenario at the turn of the century when everyone got burned.

  5. @Julian if Pipe Networks is a non-telecoms entity than KDDI would equally fit the bill. FLAG was an even earlier example. I think what is meant is that Google’s core business is not in providing access or connectivity. All the others are.

    I do wonder if we will see a bloody war in this market. Almost all the investors in Transpacific Express and Asia-America Gateway are incumbents, often monopolists. e.g. Telstra has never engaged in lowering of prices (hence the investment by PIPE)

    This is not the free world of western transatlantic capitalism, but paternalistic world of pacific nationalism.

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  7. @Raindeer, the flaw in your argument is that the transpacific market is not a regional market and is not therefore ruled by the “paternalistic world of pacific nationalism”. It is in fact the same as the transatlantic market in that it provides connectivity for US content providers such as Google to deliver their products to the masses in Europe and Asia respectively. I doubt that Google or anyone else of their ilk is going to tolerate a 10-fold difference in the price of a translatlantic STM-1 and a transpacific STM-1!

    Moreover, the dominant transpacific cable at the moment is TGN Pacific which is owned exclusively by VSNL, an incumbent that has definitely changed its spots recently. There is also the PC-1 cable which is also privately owned and has the potential to be upgraded significantly now that the owner has emerged from Chapter 11. So I really think that the prospects for a benign transpacific market in the face of all this new competition are slim.

    By the way, KDDI and FLAG are fully fledged international telecom operators whose core business is providing retail and wholesale international connectivity and must by definition own international gateways and infrastructure. A national ISP like PIPE, or a content provider like Google, or a major financial institution like JP Morgan, or an oil company like Chevron is a completely different kettle of fish but they all have massive global bandwidth requirements.

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