Here's a pretty good article. I've been a big fan of CMTN for a while, but it's starting to look like PAIR may hold much promise.
Between scanning, copying, and pasting, this article seems to have gotten bunched together, but it's worth the read...
November 25,1999 20:13
EBWCTRF] [El MASON ON BROADBAND: Charting the rising DSL tide E.9535]
Some may see the recent Federal Communications Commission ruling on line sharing as a boon to all digital subscriber line (DSL) equipment makers. Sure, a rising tide lifts all boats, but in the competitive market for DSL equipment, don't count on all boats rising to the same level. Copper Mountain Networks, Paradyne Networks and Efficient Networks are 3 pure-play DSL equipment makers that will benefit from a line sharing rule, although each to varying degrees. The key is to look at their relationship to the leading data competitive local exchange carriers (CLECs): Covad, NorthPoint and Rhythms. In a nutshell, the Nov IS line sharing rule gives the data CLECs access to the Baby Bells' voice lines, eliminating the need for data CLECs to install a separate line to residential homes for their data services. Instead, the data CLECs will piggyback their data services over the Baby Bells' voice lines to the home. The result? Shorter times to get DSL service to their customers, and cost savings (around $20) a line, that will be passed on to consumers. As DSL service drops in price, economic theory dictates that demand increases. More demand means more equipment spen4ing from the data CLECS, which will need more DSLAMs (DSL access multiplexors) as well as CPE (customer premise equipment) like routers and modems. The data CLECs have said that they expect to roll out widespread residential DSL by the summer. Look for them to start buying consumer DSL equipment ahead of their rollout, so they will be ready to meet demand. A key to sorting out the prospects for the equipment makers is that residential DSL differs from business-class DSL. For businesses, which have been the bread-and-butter market for the data CLECs to date, Internet access is sent over symmetric DSL (SDSL), which sends and receives data at the same rate. For homes, however, cheaper asymmetric DSL (ADSL) is more practical, as consumers download data from the Internet more than they send data files to the network. (ADSL speeds data to the home at a faster rate than it goes from home to network.) Covad is the only data CLEC with residential business, which accounts for about 15% of its revenue. Also, Covad has more lines and central offices in service than either Rhythms or NorthPoint and is in the middle of a $40 million branding campaign. Covad's main DSLAM vendors are Cisco and Nokia, neither of which will benefit from greater demand to an extent that makes them an attractive investment idea based solely on the FCC's line sharing rule. But Copper Mountain is the only DSLAM supplier to NorthPoint and the leading one to Rhythms. Of Copper Mountain's $32 million in revenue in the second quarter, 73-@ came from NorthPoint and Rhythms NetConnections. Shares of Copper Mountain have fallen about 5% be tween Nov 12 and Nov 24. While investors may seem wary of buying shares of Copper Mountain, which has focused on SDSL products, the company has introduced ADSL equipment and should capitalize on efforts by NorthPoint and Rhythms to get their networks ready for the residential market. Rbythms, for instance, announced a $50 million branding campaign recently, a measure that will help it prepare for entry into the consumer market. Paradyne is the No. 2 DSLAM equipment supplier to Rhythms. Although it has limited penetration into the data CLEC market, Paradyne also has a product that extends the range of ADSL service beyond the 18,000-foot range of most networks, in some cases up to 30,000 feet. As residential DSL service rolls out, distance limitations of the technology will have to be addressed. Shares of Paradyne have risen 20% since Nov 12. One wildcard to watch is PairGain Technologies, which is making a play to get into the DSLAM market. PairGain has primarily been a maker of HDSL transport technology, but is transitioning to focus on the DSLAM platform to compete against the Copper Mountains of the world. The company has been rumored to be focusing on data CLECS. Although PairGain has not made any contract announcements so far, analysts expect it to soon. Shares of PairGain have risen 10% since Nov 12. On the CPE side, Efficient Networks is the sole provider of ADSL-ready routers and modems to Covad and, consequently, the big potential winner from lin e sharing. Shares of Efficient have risen 361@ since Nov 12. Efficient also supplies equipment to many of the Baby Bells, including Bell Atlantic, BellSouth and SBC Communications. Netopia, a big-time supplier of SDSL CPE equipment to all 3 of the data CLECS, won't directly benefit from the line sharing rule because they are focused on the business market for now; Netopia is working on bringing ADSL-ready products to the market. Last week, DSL service providers were falling all over themselves to issue press releases cheering the FCC ruling on line sharing. Heard from the 3 major DSL providers: "Covad Communications Applauds FCC's Landmark Line Sharing Ruling"; "NorthPoint Commends the FCC for Delivering Broadband's 'Triple Crown'"; and "Rhythms Wins Right to Nationwide Line Sharing In a Landmark Decision for the DSL Industry." Strangely, not a peep from the equipment makers on Nov 18, although Paradyne and PairGain weighed in this week. It will probably be 6 months before the data CLECs are running their services over the Baby Bells' copper voice loops. Before that, they will be setting up their residential networks. Looking at recent stock movements, that makes shares of Copper Mountain and PairGain--a darkhorse--particularly attractive. End Bridge News, Tel: (415) 835-7692 Send comments to Internet address equity@bridge.com (slug: DSL EQUIPMENT MAKERS] [symbols:US;CMTN:US;COVD:US;EFNT:US;NPNT:US;NTPA:US;PAIR:US;PDYN:US;RTHM] Nov-24-1999 11:30 GMT |
