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.
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