Executive Editor

Money Morning/The Money Map Report

When the telecommunications revolution was still in its infancy, it was the clickety-clack of the telegraph key that signified that information was being sent to a distant locale. But it was the construction of the transatlantic cable that really unleashed the first global telecom boom by transforming the telegraph into both a global medium and a worldwide business enterprise.

The telegraph was replaced long ago. Today the click of a computer mouse serves as the audible sendoff for data that’s destined for distant climes. But some things don’t change. Once again a transoceanic cable is poised to unleash a telecom boom. But this time the Pacific is the recipient. And the data to be sent no longer consists of the mere dots and dashes of Morse code. That’s been replaced by e-mail, streaming audio and video, Internet telephony and video on demand.

The transatlantic cable brought the United States and Europe closer together. This time around Asia will be the big beneficiary.

In a move that highlights the ambitious global vision of Google Inc. (GOOG) – as well as the massive infrastructure investments needed to make that vision a reality – the search-engine giant on Tuesday joined a consortium that seeks to connect the United States and Japan with a high-speed telecom cable the group will lay beneath the Pacific Ocean.
The announcement ends months of speculation: Money Morning first reported the possibility of the project back in September.

A Show of Unity

Mark Chong, an executive vice president for consortium-member Singapore Telecommunications Ltd.,  told CNNMoney.com that "this new submarine cable network, with its high capacity and resilient transmission infrastructure, will be able to meet the strong demand for data, e-commerce and Internet traffic between Asia and the U.S."

Dubbed "Unity," the consortium brings Google together with five telecommunications companies. The group’s goal: Construct a 6,200-mile fiber-optic network between the two countries that will be able to handle any imaginable surge in Internet traffic.

The cable, which will run between Los Angeles and the Japanese coastal city of Chikura, is expected to cost $300 million, according to Reuters. It is expected to begin service as soon as the first quarter of 2010.

Google will be joining India’s Bharti Airtel Ltd., Malaysia’s Global Transit Ltd., Japan’s KDDI Corp., and Singapore’s Pacific Internet Ltd., or Pacnet (OTC: PCNTF), and Singapore Telecommunications, in the venture.

"The Unity cable system allows the members of the consortium to provide the increased capacity needed as more applications and services migrate online," Jayne Stowell, a consortium spokesperson, told Reuters.

The project contract has been awarded to Japan’s NEC Corp. (OTC: NIPNY) and Tyco Telecommunications, a unit of the Bermuda-based Tyco Electronics Ltd. (TEL).

Asian Internet Growth

The project would pave the way for all kinds of high-speed Internet and voice-based telecommunications services to such Pacific Rim nations as China and Japan.
The market is clearly ready.
Of the 6.6 billion people on earth last year, about 1.15 billion – or 17.5% – were Internet users.

But future growth will be concentrated in the Pacific Rim. Sometime this year, China will overtake the United States as the country with the world’s most Internet users, and the Asia/Pacific region should top 500 million ‘Net surfers in 2008, as well, according to ComputerWorld magazine.

That growth should continue for some time to come. By 2012 – two years after Unity’s network is supposed to become operational – nearly 50% of the world’s Internet population will live in the Pacific Rim region.

The transpacific cable could do for Asia what the transatlantic cable did for the United States and Europe.

Almost 150 years ago, the new transatlantic cable spurred experiments by such researchers as Nikola Tesla and Guglielmo Marconi, which then led to such innovations as transatlantic wireless telecommunications.

The beneficiary: The consumer. For instance, the price of a telegram in 1866 was $1.25 a word. Today, factoring in inflation, it is 60 times cheaper. Businesses also benefited, cutting their costs and making them more efficient.

The transpacific-cable-project is viewed as an effective and efficient way of serving the soaring demands for telecommunications and Internet services in the surging Pacific Region. Because of all the growth taking place in China, Korea, Taiwan, Vietnam, and a resurgent Japan, telecommunications capacity is at a premium, and existing infrastructure is inadequate from a service standpoint and outmoded from a technology standpoint.

According to The Wall Street Journal, the December earthquake off Taiwan’s coast severely damaged existing undersea cables, causing drastic disruptions in Internet service throughout Mainland China. That incident, and the problems it caused, fired up demands for investments in better-and-more-modern networks to provide the backup services that would slash the chances of additional service disruptions.

Several of the major global carriers – Verizon Communications Inc. (VZ) and AT&T Inc. (T) – are reportedly already moving to build new transpacific cables.

The Future of Google

In a company statement back in September, Google declined to confirm its plans, but still hinted at its intent, stating that "additional infrastructure for the Internet is good for users and there are a number of proposals to add a Pacific submarine cable."

Reports of Google’s involvement in this project are almost certain to revive seemingly endless speculation about just what the company’s long-term ambitions actually are. The search-engine giant has been positioning itself to be a consumer-oriented player in both the Internet and telecom sectors.

But the reports of the company’s interest in the transpacific cable project indicate Google is also very interested in bringing high-speed telecommunications services – from e-mail to voice – to businesses worldwide, as well.

In September, analyst Colby Synesael, with Merriman Curhan Ford & Co., told The Journal that that the undersea cable could allow Google to have greater control over its operating costs and infrastructure needs. He said he’s not concerned about a repeat of the late 1990s telecommunications debacle when a massive glut of fiber-optic-network capacity ended up taking years to absorb.

Said Synesael: "Even if it does create a bubble today, I would argue that capacity demand would catch up in two to three years."

News and Related Story Links:

• Money Morning News:
  Google Studies High-Speed Undersea Cable to Asia.

• Money Morning News:
  Google to Hit $600 a Share? Looks That Way, Media Analyst Says.

• The Wall Street Journal:
  Google in talks With Group Over High-Speed Pacific Cable.

• Reuters:
  Google in Talks to Lay Undersea Cable: Report.

• Damn Interesting News: Transatlantic Cable:
  The Bridle on the Neck of the Sea.

• Atlantic Cable Website:
  History of the Atlantic Cable & Undersea Communications: From the First Submarine Cable of 1850 to the Worldwide Fiber Optic Network of Today.

• Wikipedia:
  Transatlantic Telegraph Cable.
• The History Channel: Modern Marvels:
  Transatlantic Cable: 2,500 Miles of Copper.

• Free Digital Book:
  The Atlantic Cable by Bern Dibner (1959), Smithsonian Institution Libraries.

• Wikipedia:
  The S.S. Great Eastern.

• The Great Ocean Liners:
  The Great Eastern (1860-1888).

• Wikipedia:
  Guglielmo Marconi.

• Wikipedia:
  Nikola Tesla.

• Wikipedia:
  Chikura.

• CNNMoney.com:
  Singapore Telecom, others to build US-Japan submarine cable.

• ComputerWorld:
  Asia/Pacific Internet population hits half a billion.

Techies around the world will finally get a peek at Google Inc.’s (GOOG) long-anticipated Android mobile phone platform at the Mobile World Congress in Barcelona, Reuters reported, citing an unnamed source at the company.  

The Internet search giant’s highly anticipated wireless phone platform will be demonstrated by British chip designer ARM Holdings PLC (ARMHY) at the world’s biggest wireless fair.

The Android platform is a software stack for mobile devices, including an operating system and applications. It allows developers to write, edit and debug applications.   

Reuters also reported that Google plans to "deploy phones and services using the Android platform commercially in the second half of this year."

Judging by the number of tech blogs exploding with delight, criticism and curiosity, the release of Google’s phone will no doubt create a buzz equal to or greater than the hype leading up to "iDay" – June 29, 2007 – the day Apple Inc. (AAPL) launched its now-white-hot iPhone.

Despite all the chatter from the tech world, Google has remained mum about its wireless-communications aspirations. However, the company has been racking up a portfolio of patents that show it is preparing to enter the mobile-phone market [as well as the video gaming and TV markets], InformationWeek reported, citing research from Evalueserve, a global research-and-consulting company.

There’s even been heavy speculation that Google would become a bidder for wireless spectrum licenses, either now or in the future. However, UBS AG (UBS) just last week reported that Google has likely dropped out of the current "C-Block" wireless license auctions that the Federal Communications Commission is holding to sell licenses for broadcasting spectrum once used by analog TV broadcasters.

Whatever Google’s route, the fact that it’s officially moving forward signals that there’s a new entrant in the battle for cell-phone supremacy. Before Apple stuck its nose into the market last June, the main players were Nokia (NOK), Samsung Corp., and Motorola Inc. (MOT).

With a 40% market share, Nokia is still by far the sector leader. But with the sheer amount of cash, intellectual capital and marketing firepower that Google and Apple have in their arsenals, they will block out aspiring new entrants while also making it tougher than ever for the current players to remain competitive.
Consider Motorola. In recent weeks, Motorola effectively announced it was putting its handset unit up for sale – although analysts say it will be a tough sell to get someone to buy it outright. The Schaumburg, Ill.-based company was once the industry leader, and was viewed as the most innovative handset manufacturer in the business.

Activist investor Carl Icahn took a 5% stake in Motorola Wednesday, according to a filing with the SEC. Icahn said he acquired Motorola shares in the belief that they were undervalued, MarketWatch reported. Icahn’s affiliates own about 114.4 million Motorola shares, up from about 75.58 million shares, or a 3.3% stake, they held as of Sept. 30, according to the filing.

News and Related Story Links:

• Reuters:
  ARM Google phone platform demo due Monday: source

• InformationWeek:
  Google’s Secret Patent Portfolio Predicts gPhone 

• Forbes.com:
  Google May be out of Wireless Spectrum Race: UBS.

• Money Morning:
  Cell Phone Makers Add Features and Up the Ante in a High-Risk/High Return Market for Investors

Google Inc. (GOOG) didn’t waste any time before weighing in on Microsoft Corporation’s (MSFT) takeover bid for Yahoo! Inc. (YHOO). Google officials lashed out against Microsoft’s supposed motives yesterday [Monday], and even offered to help Yahoo! rebuff the takeover through a partnership of its own.

"While the internet rewards competitive innovation, Microsoft has frequently sought to establish proprietary monopolies – and then leverage its dominance into new adjacent markets," Google’s top lawyer, David Drummond said in a posting on the company’s blog.

The International Herald Tribune cited sources familiar with Google’s operations as saying that company lobbyists are already appealing to lawmakers in Washington in an effort to stall or derail the deal.

Google Chief Executive Eric Schmidt also reportedly made a call to Yahoo’s CEO Jerry Yang and offered his company’s assistance in fending off the bid. Several other Google executives made "back channel" calls to companies such as Time Warner Inc. (TWX), owner of AOL, to determine whether a rival bid was planned.

Few analysts believe a bidding war with Microsoft is likely because the company has such deep pockets. Microsoft had $21.1 billion in cash and short-term investments as of Dec. 31. The company may be forced to borrow money for the first time ever to finance its proposed $44.6 billion takeover. Microsoft has proposed paying half of the offer with stock and the other half with cash.

Still, Yahoo insists that it has received calls from a number of suitors over the weekend. A tie-up between Google and Yahoo is not out of the question either. Talks between the two search engines stalled last year, but Yahoo may find more favorable terms if it aligns itself with its former rival now that Microsoft is in play.

Microsoft has done its best to deflect criticism.

"The combination of Microsoft and Yahoo will create a more competitive marketplace by establishing a compelling No. 2 competitor for Internet search and online advertising," Microsoft’s general counsel, Bradford L. Smith, said in a statement. 

It’s a fair point considering Google drew 56% of U.S. web search traffic in December, nearly double the combined share of Yahoo and Microsoft, which attracted 18% and 13% of the market, respectively.

However, Microsoft’s reputation as a borderline industry thug is working against it.

"Google can tap into all of the ill will that Microsoft has created in the last couple of decades on the antitrust front," Eric Goldman, director of the High-Tech Law Institute at Santa Clara University School of Law told IHT.

But Microsoft isn’t the only company accused of antitrust issues. Google did its share of feather rousing last April when it bid $3.1 billion for online advertising specialist DoubleClick.

"This proposed acquisition raises serious competition and privacy concerns in that it gives the Google DoubleClick combination unprecedented control in the delivery of online advertising, and access to a huge amount of consumer information by tracking what customers do online" Microsoft’s Smith said in a statement. "We think this merger deserves close scrutiny from regulatory authorities to ensure a competitive online advertising market."

Here are the top five technology deals involving Silicon Valley companies over the past five years, including Friday’s proposed acquisition of Yahoo by Microsoft.

Footnotes: (1.) Value When Announced.

Sources: Bloomberg News, San Jose Mercury News, Money Morning Research.

[For further analysis on Microsoft Corp's attempted takeover of Yahoo Inc click here]

News and Related Story Links:

• Money Morning:
  Microsoft Launches $44.6 Billion Hostile Buyout Bid for Search Pioneer Yahoo!

• Microsoft:
  Microsoft Statement on Proposed Acquisition of DoubleClick by Google

• Bloomberg:
  Microsoft May Borrow for First Time to Buy Yahoo

• International Herald Tribune:
  Google offers Yahoo help to deflect Microsoft’s bid

Shares of search-engine Google Inc. (GOOG) leaped over the $600 mark for the first time Monday, peaking at $623 yesterday (Tuesday), before closing at $615.

Google hit this new high-water mark less than three weeks after Money Morning featured a story about analyst and media writer Paul R. La Monica, who predicted Google shares would hit $600 per share. At the time, Google shares were trading at about $560 a share.

And with Google coming out with a phone that will rival Apple’s much-heralded and much-hyped iPhone, Lehman Brothers Holdings Inc. (LEH), said Google’s share price might climb as high as $714.

Some analysts argue that, with an Internet stock in a bull market, setting a price target is a lot like creating a self-fulfilling prophecy: The mere act of setting a target may cause the stock price to rise and hit that objective.

But the bottom line is that Google not only has a good product, it is always upgrading its offerings to keep space between it and its trailing rivals.

Media writers hail Google leapfrogging the $600 level, but are missing the reason why Google may also soon eclipse the $700 level, analysts say. While Google’s empire is constantly growing through its new products and acquisitions, it makes sure to thread those new pieces through its core product — targeted search technology. Essentially, Google’s growth strengthens its base while other expanding companies end up chasing after its new offerings.

Take for example, Google’s acquisition of Jaiku — an important deal that didn’t garner half the headlines that the $600 stock price has corralled, by the way. Jaiku is a company that produces social network “activity software” for computers and cell phones. With it, not only will Google reach bigger audiences, the company will also be able to target them individually. And that’s the basic and key reason why advertisers have no problem paying Google’s marked-up rates.

Also in Google’s game plan is to show advertisement-laden YouTube videos on thousands of Web sites, hoping to generate revenue from them. This time, instead of competing with other search engines or software companies, Google is going after traditional media — primarily newspapers and television. Again, better targeting is what advertisers want, regardless of the medium.

News and Related Story Links:

• Money Morning Investment Research:
  Google to Hit $600 a share? Looks That Way, Media Writer Says.

• CNN Money:
  Lehman Raises Google Target.

• CNN Money:
  Google to let ad partners show YouTube videos.

• Money Morning Investment Research:
  The Coming Big Money Bang

In a move that highlights both Google Inc.’s ambitious global vision – and the massive infrastructure investments required to make that vision a reality – search-engine giant Google Inc. (GOOG) is in early discussions to invest in a group looking to lay a high-speed telecommunications cable beneath the Pacific Ocean.

The project would pave the way for all kinds of high-speed Internet and voice-based telecommunications services to such Pacific Rim nations as China and Japan.

Published reports in The Wall Street Journal say the discussions "remain fluid," without citing a source.

In the early days of telecommunications – involving the telegraph, as opposed to today’s Internet – it was the construction of a transatlantic cable that first really revolutionized telecommunications by making it a truly global medium and a worldwide business enterprise. And that spurred experiments by such researchers as Nikola Tesla and Guglielmo Marconi, which then led to such innovations as transatlantic wireless telecommunications.

The beneficiary: The consumer. For instance, the price of a telegram in 1866 was $1.25 a word. Today, factoring in inflation, it is 60 times cheaper. Businesses also benefited, cutting their costs and making them more efficient.

The transpacific-cable-project talks come along amid a major resurgence in interest in constructing such undersea fiber-optic networks underneath the Pacific Ocean. The reason: Such a network is a much better way of serving the soaring demands for telecommunications and Internet services in the surging Pacific Region. Because of all that growth in China, Korea, Taiwan, Vietnam, and a revitalized Japan, telecommunications capacity is at a premium, and existing infrastructure is inadequate from a service standpoint and outmoded from a technology standpoint.

[For Money Morning's free 6,000-word investment research report: 'The Three Best Investments in Asia Today', please click here. The report is completely free of charge. The feedback we've received has been overwhelmingly positive.]

According to The Journal, the December earthquake off Taiwan’s coast severely damaged existing undersea cables, causing drastic disruptions in Internet service throughout Mainland China. That incident, and the problems it caused, brought demands for new investment in better-and-more-modern networks to provide backups and to reduce the chances of additional disruptions in service. Several of the major global carriers – Verizon Communications Inc. (VZ) and AT&T Inc. (T) – are already moving to build new transpacific cables.
In a company statement, Google would only say that "additional infrastructure for the Internet is good for users and there are a number of proposals to add a Pacific submarine cable." The talks were reported earlier this week in Australia’s Communications Day.

Reports of Google’s interest in this project once again revive the almost-never-ending speculation about just what the company’s long-term ambitions actually are in the worldwide Internet and telecommunications sector. Most recently, reports indicate that Google is interested in bringing both high-speed Internet and voice-based telecom services to consumers – perhaps even via wireless technology, since Google has said it will bid for the U.S. wireless spectrum licenses next year. But the reports of the company’s interest in the transpacific cable project indicate Google is also very interested in bringing high-speed telecommunications services – from e-mail to voice – to businesses worldwide, as well.

Analyst Colby Synesael, with Merriman Curhan Ford & Co., told The Journal that that the undersea cable could allow Google to have greater control over its operating costs and infrastructure needs. He said he’s not concerned about a repeat of the late 1990s telecommunications debacle when a massive glut of fiber-optic-network capacity ended up taking years to absorb.

Said Synesael: "Even if it does create a bubble today, I would argue that capacity demand would catch up in two to three years."

Google at $600 a Share?

Media analyst and columnist Paul R. La Monica said last week that achieving this target price is more than just possible – it’s probable. The shares of the search-engine gorilla dipped below the $500 level in mid-August after the company missed its second-quarter earnings numbers in July. Then there’s the credit crunch, which was "certain" to hamper Google’s growth, many so-called experts believed.

But, since then, Google’s shares have roared. The company’s shares closed last Thursday – the day after he made his prediction – at $552.83, up $5.98, or 1.09%, each. The shares closed yesterday (Wednesday) at $568.16, down 84 cents, or 0.15%.

Indeed, since mid-August, Google’s shares have gained more than 10%, and are near their 52-week high of $571.46.

Given that, it "seems likely" that it’s "only a matter of time" before Google will hit the impressive $600 plateau, La Monica writes.

According to the columnist and CNNMoney.com editor, the most recent market-research data supports his projection. Data from the two top Web tracking firms, Nielsen//NetRatings and comsScore (SCOR), both showed that Google has built up its lead over rival Yahoo! (YHOO). It maintained its huge market-share advantage over Microsoft Corp.’s (MSFT) MSN unit, Time Warner Inc.’s (TWX) AOL unit, and others.

Wall Street analysts expect Google to boost its earnings by 44% this year, 28% in 2008 and grow at an average annual pace of 34% for each of the next five years, La Monica says. That’s a much higher projected growth rate than Yahoo – yet Yahoo trades at 46 times projected 2008 earnings. Still, even Google isn’t cheap: The shares trade at 32.66 times forward earnings, meaning they aren’t for the faint of heart. And as a company grows, it gets tougher and tougher for it to keep growing at a high-double-digit rate – the projected 34% a year for each of the next five years seems aggressive. And, yet, the company has done nothing but perform since it went public.

Other Internet Plays

If you missed this stock, don’t despair. There are always others. In fact, our analysts have identified a telecommunications company whose technology has the potential to revolutionize both Internet Video and Internet Telephony (VoIP) telephony – two of the fastest-growing subsets of the fast-growing Internet sector.

Unlike other tech wannabes, however, this company also has the managerial talent to pull it off. A case-in-point: Within the last two weeks, this firm announced a major development deal with Microsoft aimed at the still-nascent – but highly promising – Internet radio/streaming audio and video market (think about YouTube and some of the other such services, and the speed at which so-called "viral videos" are sweeping the Internet, even to the point that they’ve become such integral elements of the daily e-mail that most folks now include them almost as an afterthought).

This company’s technology also powers music downloads, another "must-have" service for most Internet users.
This company is a virtual "orphan," meaning it lacks significant Wall Street analyst coverage. That’s a positive, since, once the stock starts to soar, as our analysts believe it will, the flood of "buy" ratings that will follow (as happens time and time again, as we all know too well) will fuel the stock’s advance.

But don’t wait too long. Some analysts are starting to see the potential here. One analyst just recently boosted his one-year target price on this company’s stock, essentially calling for a 39% advance in the months to come.

Our report on this company is one of four stock-research reports that are available as part of our "Big Money Bang" package. That’s the label that our worldwide investment-research team is using to refer to an $867 billion confluence of capital that will be flowing through the global financial markets, aimed directly at such industries as biotech, telecom, finance, commodities and energy. If you’d like to read more about this, click here and receive our research report, "The Coming Big Money Bang." That report itself is free of charge.

News and Related Story Links:

• Money Morning News:
  Google to Hit $600 a Share? Looks That Way, Media Analyst Says.

• The Wall Street Journal:
  Google in talks With Group Over High-Speed Pacific Cable.

• Reuters:
  Google in Talks to Lay Undersea Cable: Report.

• Damn Interesting News: Transatlantic Cable:
  The Bridle on the Neck of the Sea.

• Atlantic Cable Website:
  History of the Atlantic Cable & Undersea Communications: From the First Submarine Cable of 1850 to the Worldwide Fiber Optic Network of Today.

• Wikipedia:
  Transatlantic Telegraph Cable.

• The History Channel: Modern Marvels:
  Transatlantic Cable: 2,500 Miles of Copper.

• Free Digital Book:
  The Atlantic Cable by Bern Dibner (1959), Smithsonian Institution Libraries.

• Wikipedia:
  The S.S. Great Eastern.

• The Great Ocean Liners:
  The Great Eastern (1860-1888).

• Wikipedia:
  Guglielmo Marconi.

• Wikipedia:
  Nikola Tesla.