Tuesday, February 26, 2008

Google buys trans-Pacific submarine cable Unity

Gigaom is reporting on Google buying a share into the Unity submarine cable. Many people will read into this an attempt by Google to become a telco or do anything out of its current layer 7 service and application business. I don't belief it is, it's just simple economics. Google now buys wholesale capacity instead of retail. My reaction on Gigaom was:

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.

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