The Broadband Market: Cable, DSL, Fiber & DSP
by Chris Connor
Overview
With the explosion of on-line multimedia offerings such as movies,
multiplayer computer games, and business applications, consumers have
demanded faster access to these multimedia offerings than they have
traditionally received via standard 56k modems - much faster in fact.
Companies crave higher access speeds as well, because faster access
will cut down on the cost of materials like CDs, paper, and video
tapes. The answer to this need for speed is broadband A.K.A. "fat
pipes".
Cable vs DSL
Broadband comes in several different forms, but the two big ones right
now are cable modems and Digital Subscriber Lines (DSL), with fiber
optics looming in the background as the biggest source of broadband
for the future. Cable and DSL offer users connection speeds that are
exponentially higher than 56k modems at around 1.5 megabits per
second. In addition, both technologies stay connected to the Internet
while a regular phone number must connect to the Internet each time a
user wants to get on line and can be automatically disconnected during
the worst possible times - like while chatting, playing games on-line,
or downloading big files.
Cable vs DSL Differences
However, speed and the always-on feature are where the similarities
between cable and DSL end. Cable access does not require a phone line,
offers the Internet Service Provider (ISP) and high-speed connection
from the same company, does not require long contracts, and it
distributes bandwidth (the amount of data that can be transmitted in a
fixed amount of time) that is shared by the cable users on a
particular network. On the other hand, DSL offers a one-to-one
connection between the customer and the ISP, and allows the customer
to choose from several ISPs. With DSL, the data is transmitted over
regular phone lines so DSL is better suited to handling two-way
communications than cable - which was originally used for just
receiving information.
Focus On Broadband Manufacturers
What is the best way for investors to profit from the booming
broadband industry? In light of the already intense competition among
companies offering broadband access, investors would be wise to avoid
that area and concentrate mostly on the equipment suppliers for DSL
and cable access. Broadband equipment suppliers should continue to
benefit from the immense growth in the industry, even as a plethora of
broadband access providers emerges, because technology is much harder
to duplicate than services.
Cable Manufacturers
The dominant cable ISP is At Home{ATHM}, but Terayon{TERN},
Broadcom{BRCM}, and Conexant {CNXT} offer better ways to invest in
broadband over cable. Broadcom and Conexant make the chipsets for
cable modems while Terayon makes the actual cable modem using its own
proprietary technology called S-CDMA. Although Conexant is one of the
biggest communications chip makers and is rapidly growing its
revenues, Broadcom and Terayon appear to have greater futures in
broadband access over cable due to tighter degrees of focus and
superior cable technologies. Terayon uses its version of CDMA
(primarily a wireless technology), S-CDMA (Synchronous-Code Division
Multiple Access), to eliminate noise on even the oldest cable systems
and to efficiently use bandwidth by differentiating the data using
codes. Broadcom dominates the cable modem chip market because its
chips have become the industry standard in a way similar to the way
Intel's chips have become the standard in the realm of PCs. In fact,
Broadcom looks to be one of the broadband elite with its cable modem
chip leadership and a growing presence in DSL, broadband wireless, and
gigabit Ethernet (a local area networking (LAN) technology). Broadcom
also recently started an optical networking division.
DSL Manufacturers
Although there are roughly three times more cable modem subscribers
than DSL subscribers in North America, DSL does have a pronounced
advantage over cable because of its one-to-one connection between the
customer and the ISP. In other words, DSL customers do not have to
share bandwidth with their neighbors. Leading the pure-play DSL pack
are two companies that have been public less than one year:
GlobeSpan{GSPN} and Copper Mountain Networks{CMNT}. Both Broadcom and
Texas Instruments{TXN} are significantly larger companies that make
DSL chipsets, but they are not pure DSL plays. GlobeSpan is also a
leading developer of DSL chip sets and Copper Mountain Networks is a
leading comprehensive provider of DSL solutions. Other major players
include Adtran {ADTN}, Paradyne {PDYN}, Efficient Networks {EFNT},
Aware{AWRE} and Pairgain Technologies{PAIR}. (Pairgain is scheduled to
merge with ADC Telecommunications{ADCT}). Bringing up the rear are DSL
companies like Interspeed{ISPD}, Metalink{MTLK}, Tut Systems{TUTS},
and Orckit.
Infrastructure Companies
Investors interested in companies that are building infrastructure for
broadband access might want to check out broadband network companies
such as Global Crossing{GBLX}, 360 Networks{TSIX}, Metromedia
Fiber{MFNX}, and Level 3 Communications{LVLT}. These companies sell
their bandwidth primarily to ISPs and telecommunication carriers, so
the broadband networks also benefit from the insatiable need for
broadband without being saturated by competition. The leading barrier
to entry for the broadband network market is considerable start-up
costs, which is why none of these companies have generated any real
earnings yet. However, some companies are leasing capacity before
their networks are completed. Basically, the broadband network
companies are willing to build their networks now at huge losses so
they can reap immense profits in the future when these networks are
completed. The biggest of these companies, Global Crossing, has a
fiber-optic network that almost spans the entire globe - serving 24
countries and over 200 major cites. Global Crossing has essentially
built an international fiber optic network that competitors will have
a hard, if not impossible, time duplicating because of the time and
cost required to deploy fiber under the oceans. Broadband networks
must also be wary of building networks with old legacy equipment,
because the network must be upgradeable for the future. Many companies
will try to equal what Global Crossing has done, but very few will
succeed any time soon.
Fiber Optics
Investors also may want to take a long look at a few of the major
fiber optic makers. Fiber optics is a key enabler of broadband because
regular phone lines simply can not compare to fiber optic lines when
it comes to broadband levels of speed. With that being said, the
fiber optic component industry is characterized by a mixture of large
companies with sustainable competitive advantages like JDS
Uniphase{JDSU} and Corning{GLW}, small companies with dynamic products
that have just began to generate revenue like Avanex{AVNX} and
Sycamore Networks{SCMR}, and one young private optic company that
could not only revolutionize the broadband industry but the wireless
industry as well. That company, Terabeam, looks to take the "fiber"
out of fiber optics. Since building fiber optic networks all the way
to a business or residence is prohibitively expensive, Terabeam looks
to transmit high-bandwidth optical signals (starting at 1 gigabit per
second) through the air. Not only does transmitting optical signals
through the air bypass expensive infrastructure to each building, it
does not require a spectrum license the way that microwaves do.
Another key advantage that Terabeam's optical signals have over radio
frequency (RF) signals is that Terabeam's technology is point-to-
multipoint, while the overwhelming majority of RF technologies are
point-to-point. With point-to-point technology, additional networks
are required to tie all the points together as opposed to Terabeam's
technology, which will offer service to multiple customers through one
hub. The biggest downside to Terabeam's technology is that it can
send an optical signal only 3 kilometers - so this limitation rules
out using the technology in all rural and most residential areas.
Nevertheless, Terabeam accelerates the practicality of an all-optical
network because it offers a solution to the "last mile" (connection to
the actual user) problem. All-optical networks benefit the whole fiber
optic component industry because this industry supplies the building
blocks for such networks.
Digital Signal Processing
A second key enabler of broadband that deserves attention from
investors is digital signal processing(DSP). DSP is essentially
enabling traditional copper phone lines to carry high-speed data
because it compresses video, images, and voice into more transmittable
sizes. DSP also boosts the capacity of Cable TV systems, which allows
them to offer the hundreds of channels that have been derided as being
excessive. According to Broadband Access Technologies by Albert Azzam
and Niel Ransom, DSP "is even allowing power lines and home electrical
wires in the wall to be used as high-speed data transmission lines".
The big four companies involved with DSP are Texas Instruments, Lucent
Technologies{LU}, Motorola{MOT}, and Analog Devices{ADI}. However,
Texas Instruments dominates the DSP market with close to a 50 percent
market share. |
