ALL: "We've only just begun."
1999: The Year of Broadband?
By Jeff Fischer (TMF Jeff)
(Dec. 21, 1999) --1998 was dubbed "the coming of age
for e-commerce" because that was the year electronic
commerce was first embraced by the teeming consumer
masses. But that was peanuts compared to 1999. In
1999, at least six times as much money was spent on
e-commerce than 1998. So, you could argue that
e-commerce truly only began to come of age this year,
not last year, and that it will be coming of age for several
years. And you could say that last year, 1998,
e-commerce was merely placed on the map.
The same is arguably true of broadband in 1999. This
year broadband, or high-speed Internet access, was put
onto the map. Many people are already claiming, far
prematurely, that 1999 was "the year of broadband."
More accurately, this was the first year that broadband
began to be more prominent in the news because it has
become clear how vitally important broadband is to the
Internet's future. So, this year was only a beginning to
what will become an immense industry.
A majority of Internet users continue to use narrowband
connections, but even as they are doing so, new networks
are being piped into their homes -- new networks that
can increase the speed of Internet connections 10 times
over. All narrowband consumers are going to be
marketed broadband connections beginning in earnest in
2000. At first, many consumers may delay switching to
new technology, but as the Internet's content becomes
increasingly dependent on broadband's speed,
consumers will embrace broadband with widespread arms.
The number of broadband converts is already in the
millions, but this is only a whisper of what is ahead. Up
from an estimated 2 million users as we end 1999,
broadband is expected to be used by over 13 million
people by 2002, and by a giant 131 million people by
2007. The three primary means of broadband Internet
connection are currently cable modem, digital subscriber
line (DSL), and satellite, with wireless, fiber optics, digital
cable, and fixed wireless all in the running, too. Jupiter
Communications estimates that by 2002, 12% of North
American households will sport cable modem access, 6%
will have DSL connections, and less than 2% will use
satellite. Meanwhile, fiber-optic networks are likely to be
utilized tremendously in the years following 2002.
When it comes to Internet Service Providers, or ISPs, the
leading Internet cable provider is Excite@Home (Nasdaq:
ATHM), with over 1 million subscribers, followed by
privately held Road Runner with about one-third as many
subscribers. A clear DSL dominator has not yet emerged,
but America Online (NYSE: AOL) is very likely to be it.
AOL has partnerships with Bell Atlantic, SBC
Communications, and other companies such that it nearly
blankets the country with DSL access. With its partners,
America Online will make it extremely easy for its 18
million members to switch to DSL -- easy enough, in fact,
that DSL may surprise analysts and surpass cable as the
predominant broadband technology.
In satellite, early leaders are Hughes Electronics (NYSE:
GMH), which is a division of General Motors, and Echostar
Communications (Nasdaq: DISH), among several others.
Finally, in wireless and fiber optics, there are a slew of
primarily young companies building for a grand
high-speed future (a list of many follows). Some will
succeed. Others will be acquired or dissolve like a
Rolaids.
The Biggest News?
AT&T (NYSE: T) didn't spend over $120 billion on cable
properties without good reason. The company expects to
earn a return on investment. One way that it can do so is
to open its cable lines to various Internet service
providers. AT&T announced that it will begin doing so in
July 2002, after its exclusive contract with Excite@Home
expires. The status of AT&T's cable (open access or
closed?) was hot news all year and will likely continue to
be debated. AT&T's agreement to open its cable to
MindSpring (Nasdaq: MSPG) in 2002 isn't enough to
please most detractors.
It isn't surprising that AT&T will eventually open its cable.
It is simply good business. Excite@Home's stock tumbled
on the December news, even though Excite@Home
promises to lead in cable Internet access despite the
status of AT&T's cable in 2002. Excite@Home has
exclusive deals with cable partners outside of AT&T that
cover some 60 million homes, and the company will likely
continue to be the number-one ISP over AT&T's cables,
too, even after this cable opens to competitors. Some
competitors will even be paying Excite@Home for cable
use. However, as long as the stock market is spooked
about the "open access" news, Excite@Home's stock will
probably waver for a while. We'll check back next year to
see how it fares longer term.
Most of the other large industry news is still taking place
beneath the surface, so to speak, as new networks are
being built under the ocean and under our city streets. In
the process of building, hungry young companies like
Qwest Communications (Nasdaq: QWST), Global
Crossing (Nasdaq: GBLX), and Metromedia Fiber Network
(Nasdaq: MFNX), are spending and acquiring in a race to
complete and offer new high-speed networks to
consumers, while wireless services are spreading over the
continent rather invisibly. Brian Graney (TMF Panic) offers
a closer look at the wireless landscape in his review of the
industry in 1999.
Looking Ahead to 2000
It is impossible to provide a brief overview of the
immense, emerging broadband industry, let alone to
summarily say where it is going in the future without
being superficial. The most Foolish way to say where
broadband is going is to say that it is growing -- fast and
large. As such, there are a number of promising
companies in broadband and related fields, so Foolish
investors should keep a wide eye out for possible
investments. I believe that well-researched broadband
investments will be among the best-performing of any
stocks in 2000 and beyond as broadband needs expand.
Leading companies to put into a Fool tracking portfolio
(maybe name the portfolio "Broadband Watch") and to
begin to research are the ones mentioned above,
including Excite@Home, AT&T, America Online, Echostar,
Qwest, Global Crossing, and Metromedia Fiber Network.
Track these and the other companies mentioned above
alongside other promising, industry-related companies
(many of them young, so risks are higher), such as Ortel
(Nasdaq: ORTL), Aware (Nasdaq: AWRE), Broadcom
(Nasdaq: BRCM), JDS Uniphase (Nasdaq: JDSU),
Harmonic (Nasdaq: HLIT), Qualcomm (Nasdaq: QCOM),
and in satellite, Teligent (Nasdaq: TGNT), and moving to
enable interactive TV, Gemstar (Nasdaq: GMST).
In networking hardware, Efficient Networks (Nasdaq:
EFNT), Paradyne Networks (Nasdaq: PDYN), Redback
Networks (Nasdaq: RBAK), and F5 Networks (Nasdaq:
FFIV), among others, deserve tracking. Also, add to your
watchlist DSL leader Rythyms NetConnections (Nasdaq:
RTHM), Internet providers Concentric Network (Nasdaq:
CNCX), FlashNet Communications (Nasdaq: FLAS),
OneMain (Nasdaq: ONME), MindSpring (Nasdaq: MSPG),
High Speed Access (Nasdaq: HSAC), and PSINet
(Nasdaq: PSIX).
In relation to MindSpring, which will be the number-two
ISP in the country with over 5 million users following its
merger with Earthlink, an interesting small-cap company
is Ravisent (Nasdaq: RVST). Ravisent sells software
enabling digital video and audio stream management in
PCs and electronic devices, including television. Ravisent
has partnered with MindSpring to provide technology to its
millions of subscribers. Ravisent has also partnered with
many major PC makers and with Intel (Nasdaq: INTC).
The company provides an important technology that
currently faces little direct competition. As of this writing,
Ravisent (at $36 per share) is valued at about $500
million.
Finally, in the oldies but goodies, Cisco Systems
(Nasdaq: CSCO) continues to dominate networking, and
Lucent Technologies (NYSE: LU) is no slouch in anything
it does. SBC Communications (NYSE: SBC) is an early
mover in providing DSL, and Time Warner (NYSE: TWX) is
the cable giant behind only AT&T. Other rocking giants
include Nokia (NYSE: NOK) and Nortel (NYSE: NT).
Wireless data is key to these two companies, while optical
networking is a business driver at Nortel that you should
keep an eye on.
We'll return next year to see, in general, how all of these
companies fare and others, too. By researching these
companies, you'll learn about others in their fields and
maybe find the right investments for your portfolio. Right
now, almost all broadband-related businesses are
ramping up operations in preparation for tomorrow's
broadband world. This building is great for both hardware
and software providers in related industries. The gates
have just opened and the broadband horses are
beginning to run. There are going to be some mighty
strong horses.
Have a great 2000. |
