Seeking Alpha
Long only, tech, growth, solar
Profile| Send Message|
( followers)  

Summary

  • Google satellite venture is a shot across the bow to traditional telecom companies.
  • Satellite and telecommunications technology today is much improved compared to prior satellite efforts.
  • Old line telecommunication are starting to cede considerable ground with their inability to come up with innovative solutions.

We recently observed how it did not make much sense for AT&T (NYSE:T) to be buying DirecTV (NASDAQ:DTV). That deal lacked any strategic synergies and was a misguided bet on broadcast video against demographic trends.

Close on the heels, we hear from The Wall Street Journal that Google is investing in satellites and planning to bring internet to unwired reaches of the globe. This is somewhat speculative since Google (NASDAQ:GOOG) has made no announcements and The Wall Street Journal article indicates that the project is in early stages. Regardless, the Journal seems to have weight in its research and while some of the details may be in flux, the general thrust of the article appears to be true. For what it is worth, the Journal suggests Google is going to deploy about 180 satellites, possibly LEO, at a cost of $1 to $3 Billion.

Without getting into the details of the type and size of the deployment, it is clear to industry observers that this is not Google's first effort to provide internet to remote areas. Google in the past has:

- explored enabling internet through balloons and drones.

- made a resource intensive effort to bring fiber to home in select markets

- invested in promoting Wi-Fi and other wireless technologies for public spaces

- provides Wi-Fi service at many Starbucks (NASDAQ:SBUX) locations.

The general theme here is that Google is doing all the things that have traditionally been the domain of telecommunication companies.

These ventures to us are the starkest contrasts between how the management of AT&T has displayed very little imagination on how to grow in its core telecom business and how the management at Google looks at same problem space and comes up with more creative solutions.

This is not to say that Google's bets are foolproof or without risks. Satellite based solutions, in specific, have been the allure of the telecommunication industry for several decades with very little to show in terms of high volume solutions. Globalstar, Teledesic, Iridium are all examples of ambitious satellite projects gone wrong.

On the other hand, the world has changed much in the years since the satellite failures of yesteryears. Unlike the earlier times when voice was the primary revenue driver, now there is a voracious appetite from customers for data and a willingness to pay top dollar for internet access.

Some analysts in the industry consider the Google effort misguided and expect there to be severe cost overruns. While there may be some truth to these arguments, we believe all of the technologies involved in the Google satellite venture have made dramatic progress in the past decade and that some of the pessimism is unwarranted.

From a technology perspective, improvements in compression over the years makes high quality video delivery using low bandwidth data connections an increasingly powerful option. The oft-cited satellite latency is overrated, especially if the satellites are LEO. And latency, to the extent it is a problem, is more critical for voice communications and not as big a problem in rich content delivery.

There are other technology vectors that make this satellite venture a lot more viable and a lot less risky than the past ventures. The satellites are lighter, the solar panels used to provide power for drones and satellites are more efficient and cost effective, and the cost of launching satellites has also fallen dramatically. From a client perspective, software antenna technology makes it possible to deploy a class of solutions that were impractical even a decade back.

In essence, this project is neither as ambitious as the past satellite projects nor is it high risk. What differentiates Google from telecommunication players like AT&T is the lack of imagination.

The Google satellite effort can have significant long-term impacts on not just AT&T but other players in the satellite internet space including Dish Network (NASDAQ:DISH), EchoStar (NASDAQ:SATS), and ViaSat (NASDAQ:VSAT).

Source: Google Invests In Satellites: A Sign Of Decay In Old Line Telecom Players?