Good Morning !
Looks like BRCM will be getting even more competition with the TI/Libit deal, as well as the NN/STII buyout you mentioned. As with any competition, consumers win with lower prices on hopefully interoperable components.
The fact that the dealmaking is occurring - rapidly and expansively - validates (in my mind) that there really is a large pot of gold at the end of the rainbow for broadband, 'specially cable.
On the subject of open access, MF has a good debate going over here:
boards.fool.com
A sample:
What exactly is "monopolized" here? Hmmm...internet access? No. Broadband internet access? No. Broadband internet technology? No. A specific, alternative broadband internet access technology developed the good old American way, at great risk and expense? Well, yeah. But is that bad? Nobody says you have to use it if you don't want to pay for it. There are alternatives.
Would you say that Intel has a monopoly on Pentium technology? Surely the R&D costs have been recouped by now. Is it time to make it public domain, so AMD and Cyrix can take advantage of it too and provide "competition" for us consumers? After all, if you want true Pentium technology, you have no choice but to buy it from Intel. How fair is that?
You get what you pay for. If you're not willing to pay, you get a cheaper, but not-quite-as-good substitute.
Why should I be obligated to pay @Home a toll to get access to AOL because they built the road?
I'll give this a shot. Um...because ATHM built the road, maybe?
Now the cost of the road has been recovered and it's time to make it free.
Say WHAT? First off, there are two "roads". There is the cable infrastructure, owned by the cable companies, and there is the network, owned by ATHM. Both are spending billions to build these two roads as we speak. They are FAR from paid for. If the government tries to dictate HOW these roads will be used once they are built, how fast do you think they will get done? I mean, REALLY? As another Fool said recently, "Portland will get cable internet when pigs fly." That is for sure. Just watch.
The only reason the cable companies were alowed to have monopolies in the first place was because it enabled a faster build of the infrastructure.
Precisely. Faster build of the infrastructure. Don't look now, but that is the juncture we are currently at.
In addition, AT&T is wrong in its business strategy to want to restrict its cable-modem access to @Home/Excite. AOL already has 17 million users, why don't they strike a deal with AOL as a content provider to entice those users to want a speedier access? Because AOL is TOO powerful and they know it, they can't control them like they can @Home with its paltry 500,000 users.
The cable companies can't keep up with demand now. And they are already suffering from slow-downs in service as more people go on line. In other words, the predictable growing pains, just like "America off-line" of a few years back. They can't split the nodes fast enough. So AT&T should "strike a deal" with AOL to get their 17 million customers? Why? What would those 17 million customers get? A clogged cable line for $40.00 per month. Growth must be managed, or it will eat you alive.
As for ATHM's "paltry" 500,000 customers, make yourself a plot of ATHM's subscriber growth vs. AOL's. You'll be stunned at how soon they intersect at current rates. It is difficult to document how many come by way of AOL, but there is no question that the number is significant. Why do you think AOL is spending so much money in Washington for? They're SCARED. They made an unfortunate business decision, they have an inferior offering, their back is to the wall. For whatever reason, they appear to see government intervention as their best chance. I don't get this. I mean, if DSL and satellite are so good...
For all the talk about "17 million customers", AOL is no Gorilla. In "The Gorilla Game" parlance (I highly recommend this book), they are more of a "King". The difference is profound. It is virtually impossible to unseat a true Gorilla. They have a value chain on their side, they have a far superior overall offering (overall is the operative word here -- in this case, think content and speed), they have high switching costs. AOL simply has none of this. They have great marketing, great content for people just learning what the internet is about, and well, that's just about it. What are the switching costs? Email? One email to everybody on your list will take care of that. Messaging? See Excite, Yahoo, etc. Content? See Yahoo, Excite, etc. What is their value chain and what incentive do they have to rally around AOL? Advertisers? Who will you advertise with? The one who can provide rich, bandwidth-intensive full-motion video or the one who is restricted to something less?
I'm not saying AOL will lose their lead, and I think they are a great company, and I own their stock, but I don't think anybody should kid themselves into thinking it can't happen. It can.
A great deal of their cable strategy is based on delivering phone service to the local market based on IP telephony, a ridiculous strategy if ever there was one. IP telephony doesn't work well enough or save enough money for the consumer to make it worthwhile for local service. It is barely worthwhile for long distance as the technology stands now, and there is a lot of research, standardization, and infrastructure buildout that needs to be accomplished before it becomes viable.
This is outside the scope of the AOL/ATHM debate, so I will only say that I'm glad you pointed this out to me. And here I thought VoIP was the next big thing. I've researched the field exhaustively and placed my bets. However, based our your incisive analysis, I will definitely rethink my portfolio. Anybody got Armstrong's number? I'll call him and break the bad news.
That gives them the incentive to build DSL service and compete with DSL competitors.
So does a competing broadband cable infrastructure. What will be the incentive to roll out DSL if broadband cable isn't rolled out (and it won't be if the government decides to open access on AOL's terms)?
I say; "competition is good."
Here we definitely agree. I think we just have different views of what constitutes competition.
Respectfully,
Craig |
