Google Edges Toward Telco Territory

News Analysis: First the search company moves into Netphony, then Wi-Fi. Could the next step be TV or phone service?

Telephone companies typically own some sort of network and offer telephone service and access to high-speed Internet connections. Now, so does Google.

So should people start calling the search giant a phone company? Not yet, but some Google Inc. watchers say the search giant appears headed in that direction.

Speculation about Googles phone company aspirations is not new, and resurges with any relevant moves.

The rumors are stiring again because in recent weeks, Google unveiled an Internet phone service as part of a new Instant Message feature, and began tests of a very small wireless broadband network.

Google also showed interest earlier this year in acquiring all the elements that make up a modern-day communications network.

The possible emergence of "Ma Google"—a play on the "Ma Bell" moniker of AT&T, the first U.S. phone company—is important not only because it helps give some clarity to those trying to predict the Wall Street darlings next steps.

/zimages/2/28571.gifGoogle is expected to target phone search. Read more here.

Its further proof that the phone industrys underlying technology has changed for good just in the last few years, and unlikely candidates like Google can take over the market.

Industry watchers are split on just what Googles doing. Some analysts, like Roger Entner of Ovum, said they believe Googles got the deep pockets to become a telecommunications network, although it might be a stretch. But Bill St. Arnaud of Ottawa-based Canarie Inc. said he thinks its a farfetched idea.

"They certainly seemed headed in that direction: Especially with their fiber network, it could be the first steps to becoming an incumbent telephone operator," he said. "But the costs of doing it would be very prohibitive."

Google downplays any speculation. Its high-speed network should be under the hood of the worlds largest provider of Internet search results. Meanwhile, Googles only now testing a way to deliver broadband, and in just two places, Airborne Gymnastics in Santa Clara, Calif., and Capps, a Mountain View, Calif. restaurant. The companys phone service couldnt possibly compete with big telcos.

"Google currently has no plans to announce about moving into this space," Google spokesperson Sonya Boralv said.

The notion of a Ma Google might have sounded like a stretch back when the Google operation began as Spartan-looking Web site where users could find other Web sites containing a particular word or phrase.

While the clean look remains, Googles expanded far beyond just spitting back long lists of Web sites. Now nothing seems off-limits to the search giants algorithms, including books. Its also built an array of Internet-based communications; theres Google e-mail, instant messaging and Internet phone calls.

/zimages/2/28571.gifClick here to read more about major search players entering the VOIP game.

Whats next, selling cable TV? Indeed, by adding a few new and very expensive bells and whistles to the network it bought, some analysts speculate that Google may be able to sell the same triple play of broadband, voice and entertainment services that major telephone and cable operators now offer.

However reticent the company may be, Google is more poised than most others to take advantage of rapid changes now underway in the technology used to make phone calls.

While itll take more than a decade to complete, telephone operators no longer must build networks of analog circuit switches, a technology whose origins date back 135-plus years.

Beginning about a decade ago, an increasing number of phone calls began using the Internet Protocols, data routing instructions that are at the heart of the Internet.

This shift has significantly expanded the availability of phone service. Because in essence all thats now required is an Internet connection, cable operators, Wi-Fi hot spot owners and even independent software makers can sell telephony.

Meanwhile, wireless technology has now become a viable, and inexpensive, way to connect a giant IP network to individual homes or offices. Thats a snap compared to the labyrinth of wires that traditional phone companies had to build.

No company seems more poised to take advantage of these intersecting forces than Google, with its pockets fattened by two recent multibillion dollar stock offerings, an overwhelmingly large number of customers and innovative product development ways.

If anything, even the notion of a Ma Google proves the telephone industry is changed now forever. To be a local phone operator once meant having to build a network of wires connecting every customer, something so astronomically expensive nowadays its likely no single phone company could build a nationwide network, as AT&T did.

The costs kept competition to a minimum for decades, beginning to percolate only when the government stepped in to force AT&T, and later its remnants, known as the Bell operating companies, to sell network access to other carriers.

But nowadays, you no longer need to invest untold billions building a network. As Google is showing, you can sow the seeds with a minimum investment to dole out broadband.

And that connection can morph into an inexpensive home phone line because of VOIP (voice over Internet Protocol) software, which turns Internet connections into inexpensive home phone lines with more trimmings than traditional phone operators can muster.

Indeed, Internet auction pioneer eBays recent purchase of VOIP operator Skype shows that nowadays, it seems you almost have to become a phone operator to remain competitive in any industry.

Also, some of Googles competitors have jumped heavily into the telephone arena. America Online, a division of Time Warner, plans an Oct. 4 debut of TotalTalk, an Internet-based home phone service meant to replace the existing home phones.

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