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Alphabet Inc.’s (GOOGL - Free Report) Google and Facebook (FB - Free Report) have teamed up with Pacific Light Data Communication, a China Soft Power Technology Holdings subsidiary, to lay down the highest-capacity trans-Pacific cable route between Los Angeles and Hong Kong.

TE Subcom, the U.S. subsidiary of Swiss technology supplier TE Connectivity Ltd. is under contract to build the route. It will double the current record held by FASTER, another Google-backed cable system.

Known as Pacific Light Cable Network (“PCLN”), the route will transmit 120 Terabits per second (Tbps) of data across nearly 8,000 miles. The network is expected to become fully operational by 2018.

This is the sixth undersea cable system that Google is backing, the others being SJC, Unity, MONET, FASTER and Tannat.

The project was first announced late last year and estimated to cost $400 million. The cable is likely to include five fiber pairs each of which is capable of providing 24Tbps of bandwidth. Each partner will have their own share of the cable to keep their traffic private.


Deal Rationale

Well, the obvious reason seems to be that both the companies will be able to offer low latency, greater bandwidth and a high security experience to customers in the Asia-Pacific region.  Google stated in its blog post that PCLN will enable it to better serve G Suite and Google Cloud customers.

But we believe that there is a stronger reason behind technology competitors striking partnerships in the subsea cable game. The exorbitant amount of money needed to lease the infrastructure or equipment in their individual capacities might be the reason behind the strategic partnership.

Recently, Microsoft (MSFT - Free Report) and Facebook has partnered on the Marea Cable, a 160 Tbps capacity, 4100 mile trans-Atlantic cable route. Amazon’s (AMZN - Free Report) Amazon Web Services (“AWS”) has also invested in a subsea cable running between Australia and Hawaii.

Zacks Rank

Currently, Alphabet carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy)  stocks here.

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