Commentary in TODAY, 10 Aug 2012: Moving from Web to tech, by Michael Khoo

By Michael Khoo 04:45 AM Aug 10, 2012

This commentary first appeared in TODAY, Singapore on 10 Aug 2012.

SINGAPORE — This month, 11 Asian telcos, consisting of China Mobile, China Telecom, China Unicom; Taiwan’s Chunghwa Telecom; Korean network operators KT and LG Uplus; NTT Communications of Japan; StarHub of Singapore; Malaysia’s Time dotcom (Global Transit); Viettel Group and the Vietnam Posts and Telecommunications Group, and Facebook have formed the Asia-Pacific Gateway (APG), a consortium which will build a 10,000km submarine cable system connecting Malaysia to South Korea and Japan with seven branches reaching out to other Asian countries including China, Hong Kong, Singapore, Thailand and Vietnam.

Led by Time dotcom and chaired by China Unicom, the project is expected to improve connectivity speeds for businesses and citizens in the region, and will complete by 2014 Q3. Total investment is estimated at USD450 million (S$560 million), where Malaysia’s Time dotcom pledged USD45 million and Thailand’s telco CAT has increased its initial investment commitment from USD10 million to USD51 million (still pending authorisation from the Ministry of Information and Communication Technology and cabinet).

The most significant aspect of the APG is Facebook’s involvement. Despite publicly acknowledging its role as an official partner of the consortium, Facebook has declined to reveal details of its investment. In this respect Facebook appears to be stealing a page from Google’s playbook, where Google had a role in the consortiums involved in the United States-Japan Trans-Pacific Unity submarine cable system in 2008, as well as the Southeast Asia Japan Cable in 2009.

In recent times, Internet-based companies such as Facebook and Google seem to be steadily moving beyond their origins as pure Web-based companies. For example, beyond investing in submarine cable Internet backbone, Google has also been involved in other access infrastructure projects including Google’s free Wi-Fi service in Mountain View, Google Wi-Fi, and Google Fibre which it launched this month in Kansas City. The latter service will roll out 1-GB fibre connections to households across Kansas City — though users will still be required to foot an installation cost of USD300 and monthly subscription rate of USD70.

Google’s hardware ambitions have also recently extended into the mobile sphere, where it joins a host of other “traditionally Internet-only” companies which have moved into developing hardware. Google’s latest project this quarter includes the launch of its Google Nexus tablet, a collaboration with Asus. Following hot on its heels are rumours of an Amazon Kindle Fire 2, and a brand new Amazon-branded smartphone. Microsoft’s new Surface tablet, to be launched in October, marks its first foray into making its own computer hardware. In China, a host of Internet companies including Qihoo 360 Technology, NetEase, Xiaomi, Alibaba and Baidu have also launched self-branded smartphones.

Rather than competing on hardware, these companies are aiming to compete against each other through the sale of content. Given China’s Internet Network Information Centre reported this month that the number of users accessing the Internet through their mobile phones has overtaken the number of PC desktop users for the time, this business strategy of moving content and increasing mobile accessibility appears to be a strategic one to future-proof their business models.

Moving into hardware and infrastructure is a risky business. Microsoft’s upcoming Surface tablet will target both consumer and enterprise markets, and early reviews have generated positive buzz around its launch in October. However, industry watchers have questioned how this move would affect Microsoft’s relationships with its original equipment manufacturer (OEM) PC partners. For the first time, Microsoft’s Surface will compete head to head with companies like Acer, Asus, Dell, HP and others who had pledged to develop Windows 8 tablets and PCs. Acer’s chairman JT Wang has gone so far as to publicly question Microsoft’s move citing it as a “negative impact for the ecosystem”.

Whether this move by Microsoft will spark off new ranges of hardware products by the technology giant will still largely depend on the Surface’s future sales performance.  More hardware development by Microsoft, and other strategic acquisitions by tech players in the market – Google buying Motorola Mobility for example – could continue to fracture the ecosystem of software vendors and manufacturers.

As the bigger names in the Internet and IT sphere increasingly expanding their portfolio to include infrastructure and hardware investments, will we be looking at a future where the Facebooks, Googles, and Microsofts dictate not only the content we view, but also the devices and means which we access such content?

Michael Khoo is a Research Analyst at the Technology Research Project Corporate (TRPC), a boutique consulting firm that focuses on the economics, policy and regulation of telecommunications and information technology in the Asia-Pacific region.

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