Favorable comments about Google (News - Alert) by Carolos Kirjner, a financial analyst at Bernstein (no relation), about Google’s U.S. fiber optic networking ambitions have generated a lot of buzz. Indeed, they are likely a factor in the company’s nice move up in early post-Memorial Day trading. 

In some colorful descriptive language, Kirjner has written:

Our analysis suggests that long-term investors in cable and telephone companies should at least seriously consider the possibility of ‘the frog slowly being boiled’…We think the impact of Google Fiber on incumbent cable and phone companies will be limited in the near-to-medium term, in large part because it takes time to deploy networks…Despite this limited short term impact, Google plays a very long game.

This Bernstein (i.e., me), who for many years was a telecom industry analyst, albeit not a financial one, disagrees a little bit with the Kirjner view. 

Google currently is deploying fiber networks in Kansas City, Mont., Austin, Texas, and Provo, Utah. Why the company would be interested in building in major markets where it needs critical mass when there are already in most cases two fiber networks that reach most desired potential customers seems illogical. 

It used to be that the incumbent communications companies by virtue of their financial strength were well-positioned to fend off additional physical network providers from entering markets or sustaining a presence. The entrance of even an entity as formidable as Google would not have been a cause for concern. The thinking would have been “we know networks and they don’t.” Hubris in fact would have given rise to private conversations about how the entrance of Google into the market would be its “Waterloo.” That was then and this is now. Google has greater financial clout, although not yet the public policy influence of incumbents, and technology trends and consumer behavior have given the company a wind at its back that incumbents do not possess.

The fact of the matter is that, because of Google’s financial clout and those trends, incumbents can no longer be seen as too big to be taken over. They actually make inviting targets. Ironically, based on efforts in the states to have VoIP services classified as unregulated information services rather than regulated common carriage ones with universal service obligations, the telephone carriers in particular are even more attractive as takeover candidates. 

It is for this reason that what Google has been doing in piloting fiber networks has been wise. It sits in the catbird seat for understanding what new services and products that customers want, and they have a powerful and mature ecosystem whose ultimate goal is that we all are on Google all the time, literally and figuratively.   

The missing piece of the Google puzzle has been ownership of the physical network in terms of its ability to wholly own all of us. Give them a few years to become immersed in all the complexities of deploying and maintaining physical networks and getting the business model balanced correctly based on a holistic view of the ecosystem, and the people at Google will be ready to buy and not build. 

Under the scenario just painted, no existing provider would be immune from acquisition. We have gone from the seven original regional bell operating companies (RBOCs) to just Verizon and AT&T (News - Alert), along with a few acquisition-hungry independents. And, the consolidation of the cable industry has been equally as impressive, as Cox, Time-Warner and Cablevision continue to drive cable industry rationalization. It seems almost inevitable that as a result of the industry dynamics we all are aware of— mobility, network transformation to being datacenter-centric, consumer desires for frictionless broadband for their growing population of network capable devices, etc. — another round of dramatic industry restructuring is at hand. 

It is also apparent that such restructuring is going to be sooner rather than later, and that Google is likely to have a major say in what the physical networking industry looks like in the future. As the other Bernstein analysis notes, time is on Google’s side, and the reality is that investors in incumbent providers are likely to be swayed when Google comes calling with an offer they can’t refuse.