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Google Joins Consortium Planning High-Speed Undersea Cable to Asia

By , Executive Editor, Money Morning •

William Patalon IIIWilliam Patalon III

By William Patalon III

Executive Editor

Money Morning/The Money Map Report

When the telecommunications revolution was still in its infancy, it was the clickety-clack of the telegraph key that signified that information was being sent to a distant locale. But it was the construction of the transatlantic cable that really unleashed the first global telecom boom by transforming the telegraph into both a global medium and a worldwide business enterprise.

The telegraph was replaced long ago. Today the click of a computer mouse serves as the audible sendoff for data that's destined for distant climes. But some things don't change. Once again a transoceanic cable is poised to unleash a telecom boom. But this time the Pacific is the recipient. And the data to be sent no longer consists of the mere dots and dashes of Morse code. That's been replaced by e-mail, streaming audio and video, Internet telephony and video on demand.

The transatlantic cable brought the United States and Europe closer together. This time around Asia will be the big beneficiary.

In a move that highlights the ambitious global vision of Google Inc. (GOOG) - as well as the massive infrastructure investments needed to make that vision a reality - the search-engine giant on Tuesday joined a consortium that seeks to connect the United States and Japan with a high-speed telecom cable the group will lay beneath the Pacific Ocean.
The announcement ends months of speculation: Money Morning first reported the possibility of the project back in September.

A Show of Unity

Mark Chong, an executive vice president for consortium-member Singapore Telecommunications Ltd.,  told CNNMoney.com that "this new submarine cable network, with its high capacity and resilient transmission infrastructure, will be able to meet the strong demand for data, e-commerce and Internet traffic between Asia and the U.S."

Dubbed "Unity," the consortium brings Google together with five telecommunications companies. The group's goal: Construct a 6,200-mile fiber-optic network between the two countries that will be able to handle any imaginable surge in Internet traffic.

The cable, which will run between Los Angeles and the Japanese coastal city of Chikura, is expected to cost $300 million, according to Reuters. It is expected to begin service as soon as the first quarter of 2010.

Google will be joining India's Bharti Airtel Ltd., Malaysia's Global Transit Ltd., Japan's KDDI Corp., and Singapore's Pacific Internet Ltd., or Pacnet (OTC: PCNTF), and Singapore Telecommunications, in the venture.

"The Unity cable system allows the members of the consortium to provide the increased capacity needed as more applications and services migrate online," Jayne Stowell, a consortium spokesperson, told Reuters.

The project contract has been awarded to Japan's NEC Corp. (OTC: NIPNY) and Tyco Telecommunications, a unit of the Bermuda-based Tyco Electronics Ltd. (TEL).

Asian Internet Growth

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.
The market is clearly ready.
Of the 6.6 billion people on earth last year, about 1.15 billion - or 17.5% - were Internet users.

But future growth will be concentrated in the Pacific Rim. Sometime this year, China will overtake the United States as the country with the world's most Internet users, and the Asia/Pacific region should top 500 million ‘Net surfers in 2008, as well, according to ComputerWorld magazine.

That growth should continue for some time to come. By 2012 - two years after Unity's network is supposed to become operational - nearly 50% of the world's Internet population will live in the Pacific Rim region.

The transpacific cable could do for Asia what the transatlantic cable did for the United States and Europe.

Almost 150 years ago, the new transatlantic cable 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 is viewed as an effective and efficient way of serving the soaring demands for telecommunications and Internet services in the surging Pacific Region. Because of all the growth taking place in China, Korea, Taiwan, Vietnam, and a resurgent Japan, telecommunications capacity is at a premium, and existing infrastructure is inadequate from a service standpoint and outmoded from a technology standpoint.

According to The Wall Street 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, fired up demands for investments in better-and-more-modern networks to provide the backup services that would slash the chances of additional service disruptions.

Several of the major global carriers - Verizon Communications Inc. (VZ) and AT&T Inc. (T) - are reportedly already moving to build new transpacific cables.

The Future of Google

In a company statement back in September, Google declined to confirm its plans, but still hinted at its intent, stating that "additional infrastructure for the Internet is good for users and there are a number of proposals to add a Pacific submarine cable."

Reports of Google's involvement in this project are almost certain to revive seemingly endless speculation about just what the company's long-term ambitions actually are. The search-engine giant has been positioning itself to be a consumer-oriented player in both the Internet and telecom sectors.

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.

In September, 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."

News and Related Story Links:

  • CNNMoney.com:
    Singapore Telecom, others to build US-Japan submarine cable.
William Patalon IIIWilliam Patalon III

About the Author

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Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning at Money Map Press.

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