Facebook, Google, Amazon and Microsoft Are About to Eat Telco’s Lunch

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There have been recent developments in the Internet backbone and last mile space that should get every Telco CEO worried. These developments are about to throw into disarray well thought out and tested business models on the bandwidth provision front.

In the last few years, there has been increased activity by Facebook, Microsoft, Amazon and Google on the telco infrastructure front.

According to TeleGeography, the international capacity deployed by these companies rose 14-fold between 2012 to 2016 and continues to grow. For example:

  • A coalition of investors led by Google is funding the new Monet cable linking Florida and Brazil, and in February 2018 announced it was backing three projects set to come online in 2019.
  • In April 2019 Google completed the “Curie” project, its first private intercontinental cable, connecting Chile to Los Angeles. It also announced last year the Dunant transatlantic submarine cable project connecting Europe and the US to be lit in 2021.
  • Facebook and Microsoft both funded construction of the Marea cable connecting Virginia and Spain, which was completed in September 2018.
  • Amazon is one of the key investors in the Hawaiki Submarine Cable, which will connect Australia to the U.S. West Coast via New Zealand and Hawaii.

Closer home, Google recently announced its building a cable from Europe to Capetown in South Africa that will land in several West African countries. Named after the Nigerian slavery abolitionist and author Olaudah Equiano, who was kidnapped as an 11-year-old and sold into slavery in the 1750s, the cable will have 20 times the current capacity provided by all existing cables on the same route. Facebook too, in partnership with some local operators is finalizing plans to lay its cable (aptly named Simba) which is expected to land in most African countries in the East and West coast of Africa.
Other than undersea cable investments, these players who were traditionally in the OTT or cloud services space, are also laying or testing last mile infrastructure. Google is operating a fiber optic metro network in Uganda and is in advanced stages of testing their high altitude baloon- based (Google loon) wireless transmitters that will beam LTE signals over large areas of the continent. Unlike ground based wireless transmitters on masts that cover a small area, a single loon can cover the area the size of Nairobi county. Once tests are complete, end users can access the service using a Google issued SIM card or a cheap roof top receiver. Hot on the heels of this is Elon Musk’s Starlink Low Earth Orbit satellites that will offer high speed broadband at 25ms latency to the entire earths surface and oceans. As of November 2019, SpaceX has deployed 122 Starlink satellites. They plan to deploy 60 more per launch, at a rate of one launch every two weeks beginning in November 2019. In total, nearly 12,000 satellites will be deployed by the mid-2020s, with a possible later extension to 42,000. Facebook is also trialing free access in a different way; by partnering with mobile service providers to offer free Facebook or discounted WhatsApp data bundles access on their networks, Its free because Facebook has paid fees for the access to the mobile operator.

What is happening here is that slowly, OTT and cloud services providers are getting vertically integrated, owning the data center, undersea cable and last mile to the end user. Soon, if all goes to plan, Google will be able to serve you a video on YouTube from a data center it owns, via undersea cables it also owns through their LTE SIM card in your Android phone. This cuts off all traditional players in the Internet broadband space. With eSIM cards soon becoming the norm, traditional mobile operators will find it hard to compete. Googles own Pixel2 supports eSIM. A Phone will by default have an internet connection free for life.

This vertical integration has been taken a step further by Facebook where not only are they about to own the entire distribution chain for internet access, they are also manufacturing their own network hardware and servers. Facebook wrote faster switching software algorithms and made them open source while at it. Its now possible to build network switches that are way faster than what you can get off the shelf. Some are commercializing this already. On another front, Google announced that they are getting into banking services to offer bank accounts and credit cards.

Other than connectivity, these players are also investing in data centers and POPs in Africa and many other parts of the world, Amazon today announced that it will have presence in Kenya early next year. These will be inter-connected via these providers owned networks, cutting off many existing commercial undersea cable operators. Until Trumps recent trade War with China, Facebook in conjunction with Huawei were planning on building a massive data center in Kenya with other inland countries to follow. These operators will start by leasing data center space from existing data centers but will with time build their own spaces because they will need to even manage the data center operations end-to-end to be more efficient in their every expanding operations. This is a massive opportunity for Konza Technopolis or even Naivasha county offering Data centers land acreage near the geothermal power plants.

What is about to happen is these players, will now offer free internet access and voice calls directly to end users in addition to financial services. Most of the world outside china is already using WhatsApp (which is owned by Facebook) to send messages and call. Many don’t use the call or video feature because it costs data to use them. Users will now be able to access services such as YouTube, Facebook, WhatsApp video and voice calls, Twitter, Microsoft Skype/Teams and Amazon Web Services for free, to many that constitutes the entire Internet. Broadband pricing and poor speeds have been one of the biggest impediments to the likes of Google, Facebook, Netflix and Amazon. If they offer this free and cut off players who charge a fee, they will increase the number of customers drastically. Investing in these projects is deliberate and is expected to yield profits for these players. This is what Elon Musk’s SpaceX and Starlink project is all about, making re-usable rockets that can launch as many satellites to orbit as possible and at low cost. He can lease his network to the likes of Amazon or Netflix or even Google to deliver content directly to end users. Currently, I am paying $9.9 for Netflix and paying a Telco about $40 for Internet access. Netflix can charge me $11 and give me ‘free’ Internet access to Netflix. In this arrangement, Telcos are impeding content providers access to markets and the faster they are eliminated by the content providers, the better their fortunes will be.

The ease with which these operators are doing this is worrying and connectivity providers need to reinvent themselves because they will soon be cut off from the internet content distribution chain. Another worry is the locking out of content providers who cannot match the investment the likes of Google are making in connectivity services. The issue of Net Neutrality crops up. For example, will Google lease their network to competing service providers? If yes, will their traffic be treated equal to Googles in google-owned cables? How will smaller players and innovators compete in a space where the big players control/own even the operating system that your device runs on?

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