Its equipment is in place at more than 60 public exchanges and, Labovitz said, over the past year the company has deployed its Google Global Cache servers in more than half of all large consumer networks in North America and Europe. Google has effectively cut out the middleman and now more than half of its traffic is sent directly from its servers to the world's consumer ISPs, Arbor revealed. Next, it could cut out the ISPs as well by offering internet plans itself. With a wealth of infrastructure already in place, Google recently announced it was taking the next step by building an experimental fibre-to-the-home network in parts of the US servicing initially between 50,000 and 500,000 homes. Google plans to connect these homes to the internet at blistering speeds of 1Gbps. By comparison, the upcoming National Broadband Network in Australia is predicted to offer about 100Mbps. "I think Google is gearing up to be potentially quite a formidable competitor to existing telcos and ISPs, given their moves into the infrastructure level," Warren Chaisatien, research director and principal analyst at Australian firm Telsyte, said.

Indeed, at the recent Mobile World Congress in Barcelona, Google chief executive officer Eric Schmidt was heckled by telco representatives in the audience who feared that Google was increasingly competing with them not only on the infrastructure level, but also by selling its mobile phone, the Nexus One, directly to consumers online, and by releasing apps such as Google Voice, which allows users to bypass the networks to make voice calls. Schmidt stressed the Google was purely experimenting in an effort to see what was required to bring networks up to 1Gbps, which could pave the way for more exciting applications and convince telcos to upgrade their networks. Analysts aren't buying it. "I think what we are seeing today is that Google is conquering the world, starting from online content but now they are building infrastructure," Chaisatien said. Chaisatien believes that, in the next five to 10 years, the ISP, telecoms and utilities industries will merge to form "smart grids". He said this was "one of the key arenas that Google intends to play very strongly in". Steve Dalby, chief regulatory officer with iiNet, said the ISP saw Google as a significant player in the online world but did not fear it any more than other potential competitors.

Peter Coroneos, chief executive of the Internet Industry Association, which counts both Google and the ISPs as members, said increasing competition between Google and telcos would only provide better outcomes for consumers. He pointed to the roll-out of cable networks in the US, which unlike in Australia are not controlled by existing telco players, but by companies traditionally in the television space. The end result is consumers get more choice and cheaper access to the internet. "What we're witnessing is technological convergence and, in the long term, people are going to be getting their internet access from many different sources," Coroneos said. "Change is necessarily painful but the successful well-managed companies will always adapt, and that's why in the face of the cable threat in the US the telcos are still profitable companies." Loading

Google's push into infrastructure will inevitably add to fears surrounding its overwhelming corporate power, and increase regulatory heat on the company. But Coroneos pointed out that Facebook this week overtook Google as the most trafficked site in the US, showing that dominance can never be assured. "Competition is important and we have very strong laws in Australia to prevent abuse of market power ... so you would expect our competition laws to keep it in check," he said.