The rumor returns every few months in some form, so today’s upwelling over on Seeking Alpha isn’t a shocker. Someone hears that Google wants a fiber backbone, then obviously that must be Level 3 Communications (NYSE:LVLT, news, filings)! And it makes so much sense on the surface. Where else can Google expand to other than into the fiber itself? How else to counter the anger of unwilling future dumb pipes? With Google even in the phone/voice business now with Google Voice and its Android platform for mobile devices, it is even easier to make the case. It rolls off the tongue so easily, that the rumor itself seems immortal. Now as readers of this site know, I love a good M&A rumor, but this one has always been a dream of traders and media outlets and nobody else’s.
Google doesn’t want to own national or international infrastructure at the conduit level, hooking up buildings one by one. They simply want to make sure the fiber their data flows on is available to them, that their business has sufficient raw material to grow indefinitely: bandwidth. Sometimes that means wrestling in the FCC regulatory mud pits with AT&T and Verizon to forestall toll booths in the last mile. Sometimes it means putting up some money to kick start a transpacific cable that wouldn’t otherwise happen. Sometimes it means building huge data centers in out of the way locations and acquiring the necessary fiber to hook them up. But buying Level 3 doesn’t fit that bill, those assets are already in the ground and the bandwidth is available. An acquirer has to want to actually operate the assets and expand them, sell the bandwidth, dig more trenches, etc – not simply own them.
Now, Google might someday want to *influence* a fiber provider by taking an equity stake someday. But they’d need a direct reason to do so, such as their role in the Unity transpacific cable. That stemmed from their desire for that bandwidth to get built one way or another, but they didn’t actually covet the undersea bandwidth business itself. To convince me that Google will directly involve themselves somehow in a company like Level 3, first show me what Google wants them to do that they wouldn’t or couldn’t otherwise do.
Let me say this more clearly. Google wants to influence how the telecommunications sector develops, and ensure it is friendly to the type of over-the-top service they excel at whether it be search, advertising, office applications, youtube videos, innovative voice products, etc. But Google does not and likely never will want to become a telecom itself.
Ok, now that I’ve planted my flag in the ground, Google can go out and prove me wrong and buy Level 3 tomorrow.
If you haven't already, please take our Reader Survey! Just 3 questions to help us better understand who is reading Telecom Ramblings so we can serve you better!
Categories: Internet Backbones · Mergers and Acquisitions
Join Our LinkedIn Group
This is plain, old “hedging.” 🙂
In addition, please make sure that your “flags” aren’t “false” like some in our government like to plant. 🙁
BTW, the best way for GOOG to ensure that the things which you outline their needs to be, would be for them to “change the business model” with a carrier and begin a “sharing” relationship for advertising, subscription, apps, etc.
If I am not mistaken, Sunit’s most recent presentation and Slide 16 alluded to this. I have yet to see a PR reflecting this new “growth model” in the CDN space, for example, though.
The problem, I think, is that both sides see the value equation differently, and thus won’t agree on the fair way to share…
“”They simply want to make sure the fiber their data flows on is available to them, that their business has sufficient raw material to grow indefinitely: bandwidth.””
what better way to assure something is available, when and where you want it, than to own the bloody thing. how better to challenge T & VZ and even S, in the future than to go head to head now – need I remind you that the future begins right now…
Because you can only own one of them, and then the others cease to be as available. Google wants them all to be available, specifically so it doesn’t have to build it all themselves.
goog getting ready for the great de-peering festival of 2010. it’s coming… When they approved last big mergers, FCC said VZ and T had to keep same number of settlement free peers until….. eyballs on a network have value and won’t be given away for free for much longer…
anon. do you have a link to that fcc settlement? thanks
hard to find good info that is up to date on the subject. a general discussion of the merger conditions can be found at:
http://pulverblog.pulver.com/archives/003264.html
and the FCC list of the carriers’ “voluntary committments” (which were then adopted into the enforceable order) can be found at:
http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-261936A1.doc
the eighth bullet point of enforceable conditions reads:
• “The applicants committed, for a period of three years, to maintain settlement-free peering arrangements with at least as many providers of Internet backbone services as they did in combination on the Merger Closing Dates.”
hope the above helps. i think this is an interesting topic in its own right and encourage Rob and readers to dig into this. i have heard credible rumors/concerns from senior industry people
That is a very interesting point. Thank you anon.