The Teleconomist
Who's Doing What in Fiber
By Cody Willard
RealMoney.com Contributor
11/10/2004 8:05 AM EST
URL: thestreet.com
Telecom BULLISH
The news reports make it seem like all telecom companies will be involved in fiber.
Fiber efforts will depend on each company's situation.
And it will not be an immediate event. There's a long rollout ahead.
Like Jim Cramer, I keep seeing these repeated (and repetitive) press reports about the regional Bell operating companies, or RBOCs, rolling out cable and video services, and I roll my eyes.
I've been saying since last year that we'll be hearing for the next several years about telecom service providers rolling out fiber networks. And just because the PR machines at these RBOCs are hard at work convincing the media (and making no small effort to grab the regulators' ears, too) that they're all about to take off like gangbusters starting right now, that doesn't make it reality. But that also doesn't mean there isn't a major fiber initiative in place at some of the telecom service providers.
All telecom companies are not created equal, and that is why they are not rolling out television and cable services at the same time, at the same rate or using the same strategies. Each of the RBOCs has and will continue to execute and strategize in vastly different and disparate ways. So this seems like an opportunity to dig beneath the headlines to the reality of what's happening in the trenches at each company:
Verizon (VZ:NYSE) : These guys are indeed going like gangbusters rolling out FTTP. They're also buying up rights to content in order to provide broadcast and VOD and other video over those networks. They'll spend somewhere between $800 million and $1 billion on this rollout this year, and at least twice that next year.
SBC (SBC:NYSE) : These guys just went to the bank and borrowed billions upon billions to finance the AT&T Wireless acquisition by Cingular, their joint venture with BellSouth (BLS:NYSE) . That's a big bite to chew, much less swallow, and they're rightly focusing a lot of energy, time and money on making that acquisition work.
In the meantime, they are testing and configuring and deciding how, when and where to roll out their own fiber networks. These guys won't be taking fiber all the way to the customer's premises in most cases, but will have to buy and build a bunch of fiber networks to get their network capacity up to snuff. They'll spend as much as a billion or so (but probably closer to half a billion) next year on this initiative.
BellSouth: Like SBC, it has to work on the AT&T Wireless acquisition integration. It also have the disadvantage of a mostly buried existing copper network, meaning that it will be much more expensive for it to roll out FTTP services than for either SBC or Verizon. It simply costs a lot more to dig trenches to lay fiber than it does to string it along telephone poles.
Qwest (Q:NYSE) : This company is simply trying to stay afloat. Growth, video, FTTP? Not an issue here.
But it's important to remember that there is fiber-related activity happening away from the RBOCs, too:
Independent Operating Companies and Municipalities: There are thousands of these companies and, like I said about the RBOCs, I'm not going to corral them all into one group. Many are rolling out FTTP, many are exploring wireless broadband technologies, and many are simply concentrating on generating cash from their copper networks.
International: Oh, and don't forget about the international opportunities out there. For example, rumblings and rumors of Nippon Telegraph & Telephone (NTT:NYSE) in Japan spending tens of billions on FTTP in the next few years have been buzzing for the last week.
So as you read the breathless press reports, remember that we're in the first inning of a multiyear fiber buildout. It's not going to happen all at once, and it's not going to suddenly explode. The purest plays, like MRV Communications (MRVC:Nasdaq) and Dycom (DY:Nasdaq) , are already seeing a major impact from Verizon's fiber foray and other deals.
Ancillary plays like JDS Uniphase (JDSU:Nasdaq) and others will also benefit, as they finalize their FTTP strategies and roll out the right products. JDSU and Avanex (AVNX:Nasdaq) will also benefit from the fiber-optic capacity that must be added inside the core of the current telecom networks, and those two and others are already seeing that upside here.
--------------------------------------------------------------------------------
At time of publication, the firm in which Willard is a partner was long JDS Uniphase, Avanex, Dycom and MRV Communications, although positions can change at any time and without notice. |
