Why Google Hates Telecoms

Google's (Nasdaq: GOOG  ) battles with Apple (Nasdaq: AAPL  ) and Microsoft (Nasdaq: MSFT  ) over smartphones, tablets, and even operating systems might make for sexy headlines, but they're distractions. Telecoms and internet service providers such as AT&T (NYSE: T  ) and AOL (NYSE: AOL  ) are The Big G's worst enemies, and for good reason: They're preventing the Web from becoming a real-time medium.

As this feature in The Economist explains, "The bottlenecks -- whether at the DNS translators, the routing computers or the host's own servers -- stem largely from the way the mix of Internet traffic has changed faster than the infrastructure used to carry it."

In short, the Web is like a war zone, where pockmarked roads and aging checkpoints force data to take detour after detour in its travels. Each detour adds time, and microseconds eventually add up to seconds. Lighting up a parallel fiber network could makes these detours irrelevant, and add speed.

Google needs the Web to be faster than it is, and it can't wait for telcos and ISPs to act. On Wednesday, the search king announced a plan to offer fiber-to-the-home connections to as many as 500,000 people in a handful of yet-to-be-named U.S. communities.

Is this really necessary?
Yes. Real-time delivery of data is essential to Google, because every one of its services is delivered, rather than installed. The Web makes Google possible; the Real-Time Web makes Google the next Microsoft.

How? Imagine if Web-delivered services loaded as fast as installed software does today. Now imagine if those same services were as functional as their desktop peers, yet sold for a fraction of the cost. That's the future salesforce.com (NYSE: CRM  ) has been talking about for years, and which Google hopes to invent with fiber to the home.

AT&T, Verizon (NYSE: VZ  ) , and their peers have time to address Google's concerns, but The Big G isn't likely to sit idle. There's too much at stake. Google needs the Real-Time Web to become reality.

It's less clear whether Google's next step will be to take this from experiment to full-blown project. That cause could lead the company to spend the $8 billion-$10 billion (after debt assumption) needed to acquire Level 3's (Nasdaq: LVLT  ) massive fiber optic network. Still, I'm guessing we'll see more chest-thumping rhetoric, but little else.

What do you think?  Should Google roll out its own national broadband plan? Should it spend the money to acquire Level 3? Or should this "experiment" remain just that? Make your voice heard using the comments box below.

Microsoft is a Motley Fool Inside Value recommendation. salesforce.com and Google are Motley Fool Rule Breakers picks. Apple is a Motley Fool Stock Advisor selection. Motley Fool Options has recommended a diagonal call position on Microsoft. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers had stock and options positions in Apple and a stock position in Google at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool is also on Twitter as @TheMotleyFool. The Fool's disclosure policy is a huge fan of giant slalom. Just so you know.


Read/Post Comments (23) | Recommend This Article (13)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 12, 2010, at 4:04 PM, mhonarvar wrote:

    internet isnt going away...this expansion is inevitable, it just depends on who controls it.

  • Report this Comment On February 12, 2010, at 9:14 PM, jadeblade wrote:

    The software business and the infrastructure business are very different. Based on Google's debut as a cell phone provider, their potential for failure in the local loop business is unlimited. They should partner with the carriers instead. If they decide to become their own provider, I will sell and run.

  • Report this Comment On February 12, 2010, at 9:26 PM, SUPERMANSTOCKS wrote:

    Google should spend the money! I have been thinking of Level 3 over the last few months also.

  • Report this Comment On February 12, 2010, at 9:27 PM, SUPERMANSTOCKS wrote:

    I think Google should do all it can!

  • Report this Comment On February 12, 2010, at 10:27 PM, bpottorf wrote:

    There was talk that Google might be interested in Level 3 after they purchased YouTube, nothing came of it. Seems like LVLT would be a great fit.

  • Report this Comment On February 13, 2010, at 1:47 AM, networkingfool wrote:

    Bad move for Google. Owning the network is very capital intensive and it will be difficult to differentiate from other Service Providers. Verizon is running Fiber to the Home via FIOS and Comcast and other cable providers are upgrading their systems for comparable performance. How is Google's Fiber network going to be any different. It looks like they want to control the end users' Internet experience from end to end. Bottom line, they should focus on growing software and services.

  • Report this Comment On February 13, 2010, at 8:42 AM, metalarmor wrote:

    If they rollout a broadband plan, they will be heavily regulated. Last thing GOOG wants to do right now is be regulated. I think this will be an all talk-no walk situation. It is not easy to expand something that is under heavy government scrunity. It is true that technology changed faster than infrastructure but no smart company will invest money right upfront if it doesnt involve making money for its consumers. Right now Telcos are worried about getting internet to everyone in America, not faster internet so GOOG can make more money. As far as government and anyone else is concerned, GOOG can go to a corner and keep silently crying 'cause they will have to wait for those extra revenue paths to open up in time.

  • Report this Comment On February 13, 2010, at 12:29 PM, langco1 wrote:

    google the online phone book has become so desparate to maintain its failing status that almost every day it comes out with its own version of its rivals better ideas.google is burning up its money chasing behind other companys but does not even realize you cant get ahead by following! googles founders have seen the writing on the wall and have begun massive sales of their stock holdings...

  • Report this Comment On February 14, 2010, at 2:23 AM, damilkman wrote:

    Greetings. I agree with folks who say GOOG should stay out of telecom. Purchasing LVLT does them no good as the bottleneck is the last mile not the core backbones of the ISP's. If GOOG wants to take ownership of the problem they need to purchase Verizons, ATT's, and Comcasts of the world. That will cost a little bit more then 8-10 billion.

  • Report this Comment On February 15, 2010, at 12:46 AM, lockart wrote:

    All of this is starting to make since. Google may purchase Time Warner Cable. Time Warner decided to do away with Time Warner Cable. The name rights of Time Warner Cable expire in 2011. Time Warner Cable will be operating with not name or ownership. It's up for sale. Google has a partnership with Clear and Intel. So does Time Warner Cable. Why pay a cable company to broadcast Google commericials when you can own the company and produce your own content. Google will be able to market ads based on shows you watch. Collect information about what you watch, buy and webpages you surf. Why spend billions to construct a fiber optic network (like Verizon)... when you can buy the 2 largest cable company in the US for about the same cost. Do your DD... I betcha that's what Google's next move is...

  • Report this Comment On February 15, 2010, at 1:18 AM, rett448 wrote:

    While I agree that Google should stick to its core business model, this move is good for consumers and for the internet infrastructure in America. One of the reasons broad band is slower and more expensive in the U.S. compared to other countries is the lack of competition. In many places there is only one high speed internet provider. Additionally, cable companies are the only ones that can offer true high speed, most DSL is too slow (3 Mbit/s) and satellite broadband is a joke. After Verizon installed FIOS where I live, the local cable company Cox, increased the speed and cut the price of its internet services to stay competitive with Verizon. I believe Google has no interest in becoming a large service but this move may affect the capital spending of other ISPs. The threat of google moving in on their broadband territory may cause other ISPs to improve their network and cut prices, which benefits the consumers.

  • Report this Comment On February 15, 2010, at 1:18 AM, rett448 wrote:

    While I agree that Google should stick to its core business model, this move is good for consumers and for the internet infrastructure in America. One of the reasons broad band is slower and more expensive in the U.S. compared to other countries is the lack of competition. In many places there is only one high speed internet provider. Additionally, cable companies are the only ones that can offer true high speed, most DSL is too slow (3 Mbit/s) and satellite broadband is a joke. After Verizon installed FIOS where I live, the local cable company Cox, increased the speed and cut the price of its internet services to stay competitive with Verizon. I believe Google has no interest in becoming a large service but this move may affect the capital spending of other ISPs. The threat of google moving in on their broadband territory may cause other ISPs to improve their network and cut prices, which benefits the consumers.

  • Report this Comment On February 15, 2010, at 10:04 AM, damilkman wrote:

    Remember that the last mile in the US is a lot different in Europe or other very well connected countries like SK and Japan. The United States is a huge country of 300 million people with dozens of major metropolitan areas. Our metropolitan areas are often not very dense and can sprawl for 100 miles. Try driving through Chicago. Its really hard and costly to run fiber(real broadband) to that many users that spread out. Now compare to South Korea where 90% of the country lives in 4 metropolitan areas. To have a real broadband solution we most likely need some kind of advance in wireless technology.

  • Report this Comment On February 15, 2010, at 12:04 PM, Melaschasm wrote:

    This move makes sense for Google. They get the first look at data regarding consumer behavoir with faster internet access. Then Google can spend a few years developing the types of products that high speed users will want, while they wait for the current ISPs to catch up.

    On the other side of the equation, if the ISPs continue to drag their feet, Google will be able to take what they have learned from this project to launch a high speed network in America's most densely populated regions.

  • Report this Comment On February 16, 2010, at 9:09 AM, sabby4390 wrote:

    Level 3 is exactly what the internetshould be. Extreemly fast, secure, and up todate in it's switching. With a world wide reach. This company had a vision way before it's time. But Unfortunetly it nearly died when the Tech Bubble burst. I would love to see this company get back on it's feet. But that will never happen. This company is a shinny Gold Penny waiting to be picked up. if not by Google, then by T or VZ just to stomp it out of existance,because they relize that it is a major threat to them if a compay like google were to aquire it !!! This Company has a potential of being worth Hundreds of Billions of Dollars with a market cap of just 2.26B and 8B in dept, You do the math. My Bet is on LVLT to be picked up & Soon !!!

  • Report this Comment On February 16, 2010, at 10:38 AM, ITplantmaster wrote:

    As a Level 3 shareholder the prospect of acquisition by Google of their network is thrilling. Nevertheless, the wireline operations (optical or copper) of service providers like AT&T and Verizon are only "break-even" enterprises. The information superhighway is littered with the wreckage of wireline ISP's like Charter, who invested heavily in optical upgrades, and tried an end-run around the big telcos. Bottom line? Wireless is where the action is. Google may be wise to keep their powder dry and fight a different battle

  • Report this Comment On February 16, 2010, at 11:47 AM, tsabbe wrote:

    A strong Level3 is important for Google stated goals. Level3 owns the plumbing Google complains about because Level3 is the carriers carrier. Having said that, Google doesn't need to own Level3. Google financial support of Levle3 will allow them to reinvest in the Ethernet infrastructure required to enable faster speeds. The current TDM (1-2Mg), OCx (US), and STMx (ROW) infrastructure doesn't scale cost effectively the way Ethernet does. Take a look at Europe and you'll see that STMx pipes are rarely requested.

  • Report this Comment On February 17, 2010, at 12:13 PM, pimpinabox wrote:

    In the infamous words of dx, you can suck it neocons!!!!!! (smiley face)

  • Report this Comment On February 17, 2010, at 12:13 PM, pimpinabox wrote:

    Neglected to mention than smiley face is impregnated into the text!!!!

  • Report this Comment On February 17, 2010, at 1:45 PM, ztrain76 wrote:

    Google is an internet Juggernaut. Think about it, not even the government could restrict them. And with Google as the engine for the globalization vehicle watch out for the competitors.

  • Report this Comment On February 18, 2010, at 6:11 PM, mythshakr wrote:

    The Public Utilities/Services Commissions of the states will not give Google eminent domain to lay fiber through public right-of-ways without being able to regulate their activities. It's not that ATT or Verizon wouldn't love to run fiber last mile in higher population areas, it's the only way they will be able to compete with cable in the long term. The PUCs won't let them without mandating the same infrastructure/rates in areas where it will never pay for itself. The cable companies are not similarly restricted.

    Sooner or later the classic telcos are going to be forced in bankruputcy because of these PUC restrictions. The only customers they will have left are the unprofitable ones they are forced to provide services for after the cable companies have taken everyone else. They will likely even loose those after the resulting rate hikes make it profitable for the cable companies to enter those markets.

    Only if federal bankruptcy courts invalidate these PUC restrictions will the classic telcos be able to compete. And the cable companies will fight that eventuality every which way but loose.

  • Report this Comment On February 19, 2010, at 2:20 PM, ChiRaven wrote:

    Google would be foolish to wait for the telecoms to upgrade the internet "last mile" to the level they need. In the '90's I protested to a friend of mine, who was a Marketing Manager for one of the "baby Bells" that a small town of 4,000 served by a tiny telephone company was getting DSL service YEARS before a neighboring city of over 100,000 served by the Bell. His answer was, effectively, that it doesn't matter because we're so big that in the end we'll own the market anyway.

    And people talking about wireless technology are kidding someone. Even with tremendous advances in microcellular architectures, wireless will never have the bandwidth to keep up with the ever-growing demand for internet service. The EM spectrum only has so much geography, and there are physical limits on how much information you can push through a given slice of it in a given time, no matter how fancy your encoding/transmission protocols get.

  • Report this Comment On February 19, 2010, at 10:14 PM, dcorley wrote:

    T and VZ are run by CEO's. Google is run by the founder.

    Google keeps getting things right. T is Uverse. Uverse?

    Oh, right Uverse.

    There are at least 1 million people out of work who would be very happy to install a new system.

    A lot of formerly "difficult" to work with cities and towns who would bend over backwards for a new source of revenue.

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