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Google Studies High-Speed Undersea Cable to Asia

By , Money Morning •

From Staff Reports

In a move that highlights both Google Inc.'s ambitious global vision – and the massive infrastructure investments required to make that vision a reality – search-engine giant Google Inc. (GOOG) is in early discussions to invest in a group looking to lay a high-speed telecommunications cable beneath the Pacific Ocean.

The project would pave the way for all kinds of high-speed Internet and voice-based telecommunications services to such Pacific Rim nations as China and Japan.

Published reports in The Wall Street Journal say the discussions "remain fluid," without citing a source.

In the early days of telecommunications – involving the telegraph, as opposed to today's Internet – it was the construction of a transatlantic cable that first really revolutionized telecommunications by making it a truly global medium and a worldwide business enterprise. And that spurred experiments by such researchers as Nikola Tesla and Guglielmo Marconi, which then led to such innovations as transatlantic wireless telecommunications.

The beneficiary: The consumer. For instance, the price of a telegram in 1866 was $1.25 a word. Today, factoring in inflation, it is 60 times cheaper. Businesses also benefited, cutting their costs and making them more efficient.

The transpacific-cable-project talks come along amid a major resurgence in interest in constructing such undersea fiber-optic networks underneath the Pacific Ocean. The reason: Such a network is a much better way of serving the soaring demands for telecommunications and Internet services in the surging Pacific Region. Because of all that growth in China, Korea, Taiwan, Vietnam, and a revitalized Japan, telecommunications capacity is at a premium, and existing infrastructure is inadequate from a service standpoint and outmoded from a technology standpoint.

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According to The Journal, the December earthquake off Taiwan's coast severely damaged existing undersea cables, causing drastic disruptions in Internet service throughout Mainland China. That incident, and the problems it caused, brought demands for new investment in better-and-more-modern networks to provide backups and to reduce the chances of additional disruptions in service. Several of the major global carriers – Verizon Communications Inc. (VZ) and AT&T Inc. (T) – are already moving to build new transpacific cables.
In a company statement, Google would only say that "additional infrastructure for the Internet is good for users and there are a number of proposals to add a Pacific submarine cable." The talks were reported earlier this week in Australia's Communications Day.

Reports of Google's interest in this project once again revive the almost-never-ending speculation about just what the company's long-term ambitions actually are in the worldwide Internet and telecommunications sector. Most recently, reports indicate that Google is interested in bringing both high-speed Internet and voice-based telecom services to consumers – perhaps even via wireless technology, since Google has said it will bid for the U.S. wireless spectrum licenses next year. But the reports of the company's interest in the transpacific cable project indicate Google is also very interested in bringing high-speed telecommunications services – from e-mail to voice – to businesses worldwide, as well.

Analyst Colby Synesael, with Merriman Curhan Ford & Co., told The Journal that that the undersea cable could allow Google to have greater control over its operating costs and infrastructure needs. He said he's not concerned about a repeat of the late 1990s telecommunications debacle when a massive glut of fiber-optic-network capacity ended up taking years to absorb.

Said Synesael: "Even if it does create a bubble today, I would argue that capacity demand would catch up in two to three years."

Google at $600 a Share?

Media analyst and columnist Paul R. La Monica said last week that achieving this target price is more than just possible – it's probable. The shares of the search-engine gorilla dipped below the $500 level in mid-August after the company missed its second-quarter earnings numbers in July. Then there's the credit crunch, which was "certain" to hamper Google's growth, many so-called experts believed.

But, since then, Google's shares have roared. The company's shares closed last Thursday – the day after he made his prediction – at $552.83, up $5.98, or 1.09%, each. The shares closed yesterday (Wednesday) at $568.16, down 84 cents, or 0.15%.

Indeed, since mid-August, Google's shares have gained more than 10%, and are near their 52-week high of $571.46.

Given that, it "seems likely" that it's "only a matter of time" before Google will hit the impressive $600 plateau, La Monica writes.

According to the columnist and CNNMoney.com editor, the most recent market-research data supports his projection. Data from the two top Web tracking firms, Nielsen//NetRatings and comsScore (SCOR), both showed that Google has built up its lead over rival Yahoo! (YHOO). It maintained its huge market-share advantage over Microsoft Corp.'s (MSFT) MSN unit, Time Warner Inc.'s (TWX) AOL unit, and others.

Wall Street analysts expect Google to boost its earnings by 44% this year, 28% in 2008 and grow at an average annual pace of 34% for each of the next five years, La Monica says. That's a much higher projected growth rate than Yahoo – yet Yahoo trades at 46 times projected 2008 earnings. Still, even Google isn't cheap: The shares trade at 32.66 times forward earnings, meaning they aren't for the faint of heart. And as a company grows, it gets tougher and tougher for it to keep growing at a high-double-digit rate – the projected 34% a year for each of the next five years seems aggressive. And, yet, the company has done nothing but perform since it went public.

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