Under Sea "Unity"

Initially penned the introduction to this article by explaining the concept of Super Profit. But later refrained because i didnt want to get labelled as a cycle freak (by all those hype cycle fans from one of my previous articles). So let me give it a modest start. After months of rumours and denials, it was out last month. Google has joined a consortium of Asian companies, Bharti Airtel, Global Transit, KDDI Corporation, Pacnet, and SingTel, to build an undersea fiber optic cable between the United States and Japan. This Move obviously raises the question of whether this is part of the "tightening clutches" strategy against wireless & bandwidth providers including ISP's around the world.

Till date google has denied the suggestion that it is entering the wholesale bandwidth business. As more & more users try google search or watch videos on youtube, it surely makes sense for google to try a more scalable solution that meets its future requirements. According to some estimates, the bandwidth rates in transpacific are atleast 8-10 times of those in trans atlantic. Under such a scenario, google had no other choice but to scout for solutions which scale. Owning a fiber will take care of its bandwidth requirements in the long term. This would also help google stay ahead of the evolving broadband scenario in Asia. What google is hard pressing after this move is that it is not competing with telecom operators but, a lot of time & efforts are being put-in to ensure that it's not entirely relying on them either.

So why and how did i relate this situation to the concept of super profit ? The Transpacific route of under sea fiber is unique in many ways. As already mentioned, the cost of bandwidth on this route is many times higher than those in the Transatlantic route. The Dynamics of the business in this region are also distinctly different. Most of the fibers in this route are owned and operated by national incumbent operators who have learned from the mistakes committed by telecom operators during the atlantic fiber boom & bust. This means that prices dont drop (atleast not in line with traffic growth), so the more bandwidth google needs, to cater to its increased traffic demand, the more revenues it brings to these incumbents. 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. So whats on platter for the operators on this route. This is definitely bad news for VSNL (now Tata Communications). VSNL was already a dominant operator along this route owning large chunks of bandwidth in SMW-2,3,4, Safe, Flag & TIISC. Flag Telecom has now been bought by Reliance but VSNL still holds both the Indian landing rights and around 20Gb on the cable system. Acquisition of Tyco Global Network made it the dominant bandwidth operator with no operator even close half the bandwidth what VSNL held in this region. The Only geography that it didnt cover through its fiber network after the acquisition of TGN was between Singapore & Japan. To Cover this geography, VSNL leased a fiber pair from Asia Netcom from Singapore to Japan. Enterprises have been complaining for a longtime to industry bodies & regulators about the high costs of bandwidth in this region. Things had to change sometime and it was just a matter of when. Google's entry in this space is a welcome competition(and thereby reduced prices), something that enterprises have been longing for. It is almost certain that google will tie-up with another operator for backhaul redundancy (of Unity) and i dont see that operator being VSNL(thanks to the lost goodwill). Reliance's Flag Telecom is the most probable operator that google will ink a deal with for the backhaul connectivity. Times sure look tough for VSNL, with the recent multifold drop in profits (the magntitude of which is unheard of in the present Indian telecom scenario), this was surely not the news it was hoping to hear.

So, what other options did google have ? It could have sat back and have watched competition grow in this market thereby take advantage of the bloodbath (a la atlantic scenario). But this scenario wasnt developing. So it had to somehow trigger this scenario and Unity, in many ways is the perfect trigger. Under the circumstances, continual leasing of STM-1's, STM-4's & STM-16's from operators was not a scalable solution for google. Google, in many ways believes that its bandwidth requirements have exceeded the ability of what the traditional players can offer, so having a fiber which exclusively caters to its requirements isnt that bad an idea.

Many people believe that this is a start of a trend because there are many companies out there just waiting for bandwidth prices to fall through natural means but never ever evaluated the option investing in a under sea fiber. With google's lead, they may start looking at this option. The only other operator, i believe which may (must and should) follow google's example is Microsoft. With its NOC in Singapore, and significant investments around Asia & Europe, a stake in a fiber consortium aint that bad an idea for Microsoft. But apart from Microsoft I dont see any other operator following google's example. One must remember that it is not all free lunch after investing in a under sea fiber. There will be a significant ongoing cost, for fiber maintenance which is more than 5% (per annum) of the original cable investment. Apart from this there is also an unpredictable aspect of fiber getting cut ot sliced that has to be addressed. Considering all these, i believe only google and microsoft have the kind of scale to derive any sort of advantages out of owning an exclusive under sea fiber.