["H&Q Examines the Evidence" or "Dirge for CAP-based ADSL":]
Pierre, you ask some excellent questions:
<<< Why is everyone so postive on Amati given all these reports:
AWRE/ADI have their own DMT/chipset...they are supplying PAIR/ASND
ALA has their own DMT solution --- Orckit has their own DMT -- CAP is to be deployed first --- and other forms of XDSL VDSL still far away --- Once you have 1.5Mbps to your house...who needs more...there are no real applications requiring this bandwidth (I have a cable modem at T-1 speeds) --- Who needs CopperGold and Amati?>>>
And today, H&Q conveniently provide some possible answers. Their analyst Joe Noel examained the recent USWest roll-out announcement and in the following report comes to a startling conclusion regarding the future of CAP. It's a long report and I have to type it out, so nothing less than the Mother Theresa Award, okay?
>>>[Yesterday] US West's interprise group announced new high speed access services in the areas of IDSL and HDSL for deployment throughout their 14 state territory. The IDSL-based services will be based on Ascend's MAX 4000 product and the HDSL-based services will be based on PairGain Technologies' single pair HDSL product called EtherPhone.
While there have been many RBOC and Telco announcements of ADSL/ISDN services, we believe that this announcement for USW's interprise group is highly significant. This unregulated group within USW is noted within the telecommunications industry for being very aggressive and for actually following through with service offerings where as most of the RBOCs have the reputation for "fluff" announcements. USW indicates to us that they plan on being as aggressive in these new service deployments as they were in deployment of frame relay services. This group's performance in marketing frame relay has been very strong: we believe that USW currently has more frame relay ports installed than do all of the other RBOC combined. USW has even installed more fram erelay than Sprint or MCI, and is a close second in installations to AT&T.
USW's new initiative will be offered as a complete packaged service. For example, whereas ISDN services were marketed to simply offer connectivity and the end customer was responsible for the performance of the end to end connection, these new services will provide complete connectivity to the corporate LAN, the Internet, video conferencing units, etc.
The first of these service offerings is called LAN Connectivity Services Connections. This is an IDSL-based service that will provide 128 Kbps of connectivity to the customer. Further, the service will provide connectivity to corporate LANs or to the Internet. USW will provide all of the needed equipment plus the required TCP/IP protocol stack. In addition, USW will provide email access, a browser and a Web page at an additional cost. The basic service is priced at about $75 per month. Ascend will supply the equipment supporting this service.
The second service offering is called Secure Internet Connection. This service sill supply 708 Kbps plus a 64 Kbps voice channel direct connectivity to the Internet and telephony for approximately $120 -160 per month. This service will provide approximately the same service capabilities as outlined above, but will, of course, provide a much faster access speed. PairGain Technologies will be the supplier of the HDSL technology that will operate on a single pair of copper wires.
It is our belief that both of these services will be highly successful. If USW is able to replicate their frame relay success, then revenue generated from equipment sales will prove significant for both PAIR and ASND. Our contacts at USW indicate that they are expecting approximately 75% of service subscribers to select the 768 Kbps option. Over the next year we believe that it is possible for USW to sell approximately 27,000 of these connections. At an approximate $550 per line ASP for the PAIR EtherPhone product, the revenue impact on PAIR is approximately $15 million. We are also expecting at least one other RBOC announcing such services over the coming months.
Both the 128 Kbps and 768 Kbps services will be installed directly to the customer location by placing a "box" either on the side of the building or somewhere inside the building. The connection from the box to the customer's computer system will be via Ethernet. We believe this is significant due to the very high penetration rate of this technology.
We believe this USW announcement will also prompt the other RBOCs and CAPs to accelerate their network access enhancements in order to remain competitive to USW. We also believe it is important to point out here that while the common belief is that USW services the Western United States, in reality USW has significantly expanded their interprise services outside of their traditional service area and now operates in more than 210 sites throughout the Unites States and has announced their intention to be deployed in 300+ sites by the end of 1997.
We believe that over the coming years we will see many RBOC, CAP and local exchange carriers announce services similar to those announced by USW. We further believe that these new service offerings are a model for how access to telecommunications networks will be provided over the next ten years for both networks within and outside the United States.>>>.
[H&Q lists the beneficiaries of these trends: PAIR, ASND, and AWRE; all companies they follow. We could rightly add Amati to this list, as well as several others like Orckit. ]
<<<
PAIR seems to be the biggest beneficiary of this USW service initiative. Our contacts at USW indicated that they are expecting sales of the 768Kbps version of this product to out-sell the 128 Kbps version by 3 to 1. We also believe that PAIR is well positioned to establish relationships with other service providers using this technology. We also believe that these single pair HDSL service initiatives will leave PAIR well positioned to land the real ADSL contracts that will be awarded later in 1997.[My note: interesting use of "real" --- versus what?]
Ascend: The vast majority of RBOCs are trying to get data traffic off of their main switches, which are designed to carry voice traffic. The IDSL technology being marketed by Ascend enables an RBOC to route this data traffic separately from the voice traffic. For this reason, RBOCs have a large incentive to base their service offering on IDSL. Considering that Ascend currently has MAX 4000 family products installed in 5 of 7 RBOCs, we see a strong possibility of a significant revenue stream developing for Ascend. Several months ago, most within the telecommunications industry did not consider ASND to be a contender in this area. We believe this USW announcement and the previously announced MFS contract place ASND firmly in the thick of things in this developing industry.
AWRE: With Ascend becoming a player in the xDSL market we believe that it is likely that their new DMT ADSL partner, Aware, will significantly benefit from Ascend's technical and market power in this area. As the RBOCs begin to seriously consider DMT ADSL capabilities, it is our opinion that the incumbent vendors will hold a significant advantage over the competition. We can easily see a situation developing where Ascend installs Aware's ADSL technology into the new TNT platform in order to support future deployments at USW and other RBOCs. We also believe that it is significant to point out that Ascend holds an equity stake in AWRE. [My note: Whoa! I didn't know this. Since when???]
CSCC: While it appears likely that some of USW's customers may disconnect their frame relay access lines in favor of these new services, we do not believe there will be a negative impact on CSCC. Rather, we believe that it is likely that CSCC may see an increase in port sales to USW as traffic on the USW Interprise network builds. In addition, it appears that there will often be a direct connection between the Cisco Catalyst ethernet switches and the Newbridge ATM switches that USW is currently using. Should these services become popular we believe it is possible that USW may need to significantly increase the number of Newbridge switches that have been deployed.
Losers:
Listed below are some fo the companies and technologies that could experience a setback by these new types of access services -- both USW's and possible deployment by other service providers.
ISDN:
We believe that ISDL technology is a significant set back for ISDN. While IDSL is very similar to ISDN, we believe that its deployment is much easier for service providers due to IDSL data traffic not needing to be run through the voice switch. Additionally, both the IDSL andHDSL services from USW will present the user with an Ethernet interface. This means there will be little need for many of the ISDN terminal adapters and "modems" that are currently being marketed. Vendors that are relying on sales of some ISDN-related infrastructure hardware could be i for a surprise as the RBOC decide that these products are no longer needed. [My note: the rash of ISDN-related announcements appears to be stage II in its demise. Stage I was their vociferous support earlier in the year, Stage II the "yes, but" phase we're seeing now, and Stage III, yet to come, the final pullback when these new services are actually deployed.]
CAP-Based ADSL:
We see both the Ascend IDSL and the PairGain HDSL technologies as displacing the CAP-based technologies. While the CAP-based technologies served as a good interim solution until the DMT-based ADSL became marketable, we believe that the window of opprotunity for continuing the priviledged sanctuary heretofore afforded CAP-based ADSL solutions is quickly coming to an end.>>>
Later tonight, I'll add some thoughts on Amati's 2Mbps upstream capabilities and how this might impact PAIR's dominance in that spectrum of bandwidth offerings. I'm not a techie, but I've got enough to get the ball rolling.
Stay tuned!
Pat
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