In defense of cable modems, I like the concept because it is relatively simple compared to most alternative possibilities. As you indicated, cable modems already are being installed by cable companies, proving that cable companies need not be just broadcasters. (Ramsey, how do you like your cable modem?).
Only a year or so ago, the deep-in-debt cable companies thought they were dead meat, first because of what appeared to be a run-away DirectTV success, expected to be followed immediately by telephone companies putting high bandwidth on existing copper wire (xDSL, ISDN, etc.) and using their reliable, two-way communication experience to deliver the coup de grace to the cable industry.
Since then DirectTV has shown its limits to the point of completely dulling that treat for the next few years at least. Telephone companies cannot seem to retreat fast enough from providing high-bandwidth television/internet service - now they all seem content to wrestle over local vs. long-distance traditional services as well as invest in wireless PCS-type operations. Downstream, they faintly see fiber-optics over the last mile, or wireless local loop, or even xDSL over copper, but they are clearly cautious about plunging into anything that is not guaranteed to succeed, simply because the investment costs are outrageously high.
Recall that the transportation industry began deregulating in full force around 1980, causing a whirlwind of consolidation that lasted until the mid-1990s. Just a couple years ago the airline industry lost more money in one year than it had made cumulatively from the beginning of commercial aviation (as I recall). As PanAm, TWA, Braniff and Eastern, among others, bankrupted, it is interesting to note that during this whole period of adjustment the industry did not have to face any consequential technology decisions, not one. The average airframe at TWA today predates the beginning of deregulation. ILS controlled landings at airports then as it does now, since MLS never got off the ground in the U.S. Even GPS remains a dream in air traffic's eye. The only expensive change for airlines championed by the FAA during all those years was a hopeful 1995 shift to Stage 3 aircraft, which got waylaid by the industry before the proposal saw the light of day.
Now the telephone/communications industry is beginning deregulation in earnest. This industry is far larger than the airline industry, and in stark contrast, it is faced with incredibly rapid and confusing technological change. The RBOCs are walking dinosaurs due to their high fixed-assets requiring high on-going maintenance. From now on, if they make even the tiniest of errors they risk failure. For example, spend billions to upgrade the system to a short-term, soon-to-obsolete capability (xDSL?) and they might loose the option to invest in the successor technology (fiber optics or WLL), causing death. Jump prematurely into interactive TV and fail.
None of this is lost on the cable industry. With a reprieve from both of these death-dealing competitors, they realize a window of opportunity has opened for them to push cable. Good or bad, they have no option. The money will come from credibility of the story. Cable's debt is only a problem if they are going to slowly leak away. Wall street will throw more money at them if everyone believes cable will win.
I don't see the security problem you mentioned being a show-stopper. Already, all the leading software companies are encrypting two-way communications, so having access to packets won't tell you much about your neighbor's conversations.
The problem of sharing bandwidth of course is resolved simply by installing more nodes as demand increases. Admittedly, cable companies probably will have to be pushed to add nodes, but this will not surprise their customers as anything new.
None of this is to say I am right; only to suggest that these waters are dangerous for investors. Personally, I have a rule not to invest in any operating company, telephone, PCS carrier, or cable - simply because I can't pick winners with certainty, and I suspect they will all be losers during lengthy periods until things settle down.
What does this all mean for WIND? Wonderful things. If telephone companies win everything, WIND wins because they sell heavily into the telnet, datacom equipment industry. If cable companies survive, WIND wins because they are used by major cable modem manufacturers and VxWorks/IxWorks will be used in back-office and node switches, routers, etc. If satellite TV wins, the so does WIND because VxWorks is in satellites, ground-stations and STBs. If they all win and beat themselves to death, then WIND wins three times as much as before.
How big is all this for WIND? Yesterday, Zona Research announced internet gear will go from $35 billion this year to $107 billion by the year 2000. WIND's minuscule portion of this pot will grow beyond a factor of three because WIND's products are on the leading edge of technology. This means that the 25% to 50% of WIND's current business which is derived from telcom/datacom business will grow by at least 50% annually, with profit substantially above that rate.
Meanwhile, somewhere yesterday I read that cable modems were taking off soon into the millions. WIND will get a sizable chunk of that business, too.
Finally, H&J announced last night that they will show off their seamless Soft-ATM connection with Tornado, suggesting that VxWorks/IxWorks is the ideal tool for implementing ATM in software. Because H&J has worked with WIND from some time, this is hardly ground-breaking news; however, it is important coming on top of all the other encouraging news about expansive internet build-out. Why? Because ATM, at least on the backbone if not on the client side, is becoming the solution of choice, and is experiencing mind-boggling growth. The problem in practice is that ATM is an evolving standard, making its use dicey because of anticipated needs for protocol enhancements, especially when the number of nodes increases exponentially. Hence the attraction of paying a little more for faster processors and implementing the standard in software, thereby making network ATM upgrades trivial.
The amazing thing is that with all of this news, suggestive of explosive growth for WIND going into the turn of the century, the stock gave up point yesterday.
Allen |
