NEW YORK (TheStreet) -- A plan that would have Google (GOOGL) become a major investor in Elon Musk's SpaceX to help fund and launch hundreds of satellites that would bring the Internet to every corner of the globe will not pose an immediate threat to land-based telecommunications companies.
The idea has Google investing $1 billion in SpaceX to provide satellite Internet service to areas not currently served. This would allow SpaceX to launch hundreds of small satellites into orbit at about 750 miles above the Earth.
"Yes, the telcos should be concerned about this, but they have a few years to figure it out. Musk has said that rollout would take at least five years," said Scott Strawn, IDC's research director.
But there is a long-term menace to the telcos.
"The people involved in this likely believe that Internet access is likely to substantially spur additional activity and Google and Facebook (FB) want their piece of the action. That said, I imagine the intent is to build a global network which may replace the need for telcos in more advanced economies, as well, which will help them generate revenue to justify the expense. But it is better PR to talk about those countries that don't currently have access," Strawn said.
Making such a system work financially is an issue, and that could reduce the threat to the established Internet delivery players.
"I really don't consider this a threat to the telcos. If it were economically viable to serve these people they [the telcos] would be doing it already," said Joe Hoffman, practice director, mobile networks for ABI Research. He does believe Google will make the investment and that even if the project comes to fruition, nothing would be on the market for five to eight years.
Hoffman noted that putting the satellites in orbit is only one piece of the puzzle. The consumer would need an affordable phone or computer, the area in question would require a reliable power source and some type of ground-based antenna system would be needed either on the phone or in the local village. All of which would be very expensive to do, he said.
However, Strawn pointed out the finances could be made to work as it may end up being less expensive to launch satellites, particularly using SpaceX's reusable rockets, than to extend Internet service the traditional way by putting up towers and laying cable.
"Currently, only about 2.7 billion people have internet access. Even if on a per capita basis they are not deriving as much revenue, there is still an enormous amount of economic activity taking place among the remaining 63% of the planet," said Strawn. This would make the investment eventually worthwhile.
Google has already invested and started research on two other methods of bringing the Web to rural and poverty struck regions. One, dubbed Project Loon, would create a network using thousands of balloons drifting around the Earth at about 20 kilometers. Also, last year the company purchased drone manufacturer Titan Aerospace, which would use Google's products as a high-flying Web delivery platform.
Google and SpaceX are not the only companies looking to use satellites. OneWeb, with the backing of Virgin's Richard Branson, is moving in a similar direction and Facebookand Internet.org have also announced plans.
TheStreet Ratings team rates GOOGLE INC as a Buy with a ratings score of B+. TheStreet Ratings Team has this to say about their recommendation:
"We rate GOOGLE INC (GOOGL) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels, good cash flow from operations and expanding profit margins. We feel these strengths outweigh the fact that the company has had sub par growth in net income."
You can view the full analysis from the report here: GOOGL Ratings Report
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.