I thought this was very interesting for the GNET clan....
While pundits and analysts are serving up a variety of
sundry reasons for the stark downturn in high-tech stocks,
they're still overlooking one important factor. There's no
question that higher oil prices, a weak euro, and red ink
are impacting companies of all stripes, but the hard times
befalling many dot-com firms are worsened by a lack of
something sorely needed: broadband access.
Although this is bad news for many e-tailers whose burn rate
will put them in bankruptcy before such faster Internet
access will be widely available, it could be a bonanza for
savvy investors who buy shares in some now-slumping
telecom/cable players. Moreover, once broadband access is
firmly in place, the current dot-com depression will
dissipate like fog being burned off by the sun, triggering
the second stage of the Internet gold rush.
The great equalizer
A joint study released by The Arbitron Company and media
research firm Coleman revealed some interesting facts about
broadband users:
-- Individuals in broadband households averaged 134 minutes
per day online, or 61% more time online than dial-up
households.
-- The increased usage makes broadband households bigger
consumers of all electronic media, spending 22% more time
downloading video and audio media than those without a high-
speed connection.
-- Half of the Americans with broadband report they're
making more online purchases now that they've switched to
the faster service.
"Broadband changes everything," says Warren Kurtzman, vice
president at Coleman. "This study provides clear evidence
that we've only begun to see the Internet's true impact on
media usage."
Not enough
The report could be considered good news, except for the
fact that as of July, out of 123 million U.S. households
connected to the Internet, only about 8 million of them had
broadband cable or DSL (digital subscriber line) access,
according to a survey by Nielsen Media Research and
NetRatings.
It would be foolish to assert that a quicker rollout of
broadband would have saved some cash-burning e-tailers, but
it's possible that widely deployed broadband could have
prevented pioneer Webcaster Pseudo Programs from closing its
doors in September. Pseudo, which offered original Web
video programming, cited the slow adoption of high-speed
Internet connections as one of the main reasons for its
early demise. At the time, a company spokeswoman said she
expected "to see a company doing what we tried to do in
about two to three years." That's when most industry
experts forecast a more robust broadband infrastructure will
be in place.
One has to wonder if such capacity were widely available
today, how much easier it would be for Amazon.com (AMZN) to
reach profitability pitching its goods and services in
streaming video rather than static Web pages.
It could also breathe life into music sites such as MP3.com
(MPPP). After all, who wants to be faced with the
proposition of waiting 20 to 40 minutes to download a three-
minute song?
The slow rollout of broadband is also taking its toll on
some major portals trying to expand their customer base from
consumers to businesses. One example is Yahoo! (YHOO),
which acquired Broadcast.com in July of 1999 for $4.7
billion as part of its strategy to expand broadband audio-
video conferencing to businesses. But according to David
Zale, an analyst with Sands Brothers Investment Research,
the lack of broadband infrastructure so far has dampened
Yahoo's success in this arena.
So what's the problem?
While there are many obstacles on the road to a timely
rollout of broadband in the U.S., the main stumbling block
has been the complicated process of installing both cable
and DSL modems.
Since a technician must make a personal call to each
subscriber's home, the process is an expensive proposition.
Companies have been hard-pressed to hire and train enough
qualified technicians and customer service reps to stay
ahead of the demand curve. In addition, largely technically
illiterate customers ratchet up the costs even more by often
having service techs come back a second time to fix phantom
bugs.
Some of the big players are committed to making broadband
installation easier and less costly, like Time Warner (TWX),
which inked a deal in September with software maker
Broadjump to buy 1 million licenses for high-speed Internet
self-installation software.
Consolidation slowing things down
But aside from installations, the speedy rollout of
broadband is being impeded by the ongoing consolidation of
high-speed Internet assets. For example, although,
ExciteAtHome (ATHM) has the largest broadband subscriber
base of 2 million as of August, its performance has been
stifled by the infighting spurred by its recent takeover by
AT&T (T). In fact, last week, AT&T's stock was downgraded
by Salomon Smith Barney analyst Jack B. Grubman, who wrote:
"With ExciteAtHome trading at $12 per share, there would be
a $2 billion liability on AT&T's balance sheet if AT&T had
to file a 10Q today."
Meanwhile, the largest broadband stakeholders, America
Online (AOL) and Time Warner, are locked in a battle with
the U.S. Senate on how their potential merger might affect
competition.
"I am concerned that the AOL-Time Warner merger, if approved
with this intertwined interest with AT&T, might have
anticompetitive effects to the detriment of consumers,"
Senator Orrin Hatch wrote in a letter last week to the
Federal Trade Commission.
Opportunity for investors
As bad as the entangled companies look now, they're going to
have to come to terms with issues of access sooner rather
than later, simply because it's in their best interest to do
so. If not, the dot-com shakeout will continue to deepen.
But as the urgency of having widespread broadband access
becomes apparent to all, look for shares of AT&T,
ExciteAtHome, and AOL/Time Warner to leap from their current
bargain-basement prices to all-time highs. In addition,
shares of companies such as Earthlink (ELNK) and Northpoint
Communications (NPNT), which are currently close to 52-week
lows, could also soar.
Cyberspace is becoming a crowded town, and its congested
highways certainly need expanding. That's the one thing
preventing the Internet from extending its reach and
delivering on the promise of a universally wired world. I
simply call it the broadband factor.
I LOVE this article as it relates to the business plan of INFORUSS, the new company that was created yesterday. |
