It may be a little premature to say Facebook is becoming a telco, as Commsday has, but its latest investment activity could be cause for alarm or joy, depending on how existing telcos see it.

Facebook has just announced investment in a 10,000 km Asian undersea cable project, declining to reveal how much money the firm was putting into the scheme, saying only that a consortium of firms had invested $450 million in total. The new cable, known as the Asia Pacific Gateway (APG), will run directly from Malaysia to South Korea and Japan, with links branching off to other countries and is designed to improve internet speeds for citizens and businesses in the region.

With news that new Facebook registrations are slowing in the traditional northern hemisphere markets, but still rising sharply in Asia, it makes eminent sense for Facebook to invest in the region, and there is no doubt that faster Internet speed may make it easier for Facebook to recruit new members in Asia. However, Facebook’s massive growth in markets such as Indonesia, Philippines and India is being driven by mobile access via 2G devices using text. So why invest in big capacity fiber?

Facebook is seriously cashed up after its pubic offering and can be excused for looking at a broad spread of investment options, but those involving network infrastructure are sure to raise eyebrows in many communications service provider (CSP) boardrooms. Could it be a sign that Facebook is hedging its bets in case telcos start to question its ‘free’ use of their pipes, or is it ostensibly meant to ensure connectivity between its own data centers around the globe?

Of course, Facebook is not the first Digital Services Provider (DSP) to invest in network. Google set a precedent in the U.S. with its rollout of a broadband fiber network to the ‘under-serviced’ residents of Kansas City. Google says the “project is about making the web better and faster—but it’s also about making the Internet more accessible for people throughout Kansas City. Digital inclusion here is a priority for Google, and it’s clear that it’s also a priority for community non-profits and the local governments.”

In justifying that investment, Google commissioned surveys that revealed one-quarter of Kansas City residents were not connected to the web at home. It also found that “one of the primary reasons is cost. Twenty-eight percent of those who don’t use said that they don’t go online because they don’t have a computer, or because Internet access is too expensive. Meanwhile, 41% of respondents said they don’t go online because they just don’t think it’s relevant to their lives.”

It’s fantastic that Google would be so concerned about Kansas City, but surely the same arguments would apply to almost any other regional city or town in the U.S. Is this justification for Google to roll out fiber across the country, and even further, and eventually cut out existing network operators altogether? Google also announced in 2008 that it would invest in a $300 million undersea cabling system called Unity between Asia and the U.S. justifying that investment along the same lines as Facebook.

Whatever the reasons, Internet players and DSPs like Google and Facebook are well cashed up but, unlike their CSP counterparts, they appear fearless in making innovative investments in the future, and buying into network infrastructure gives them a good investment spread. CSPs themselves are also making investments in digital services, and maybe that is being perceived as a threat by the likes of Facebook and Google.

Realistically, however, CSPs and DSPs will have to work hand-in-hand at some stage to offer customers the best of both worlds and produce some sort of viable ecosystem. If one camp, or the other dominates, we will surely see a massive shift in the way communications services are controlled. It’s too early to say which side will dominate, both have good cash flows (for now), solid reserves, and a will to be active players in the digital economy. How long before we see big investments by DSPs into existing CSPs and vice versa? Nevertheless, things could get very ugly, very quickly if either side feels threatened.

First published at TM Forum as The Insider, 6 July 2012