To All:
Posted from PairGain Thread: Phone vs Cable Internet Access.
To: Jay Mowery (19293 )
From: stevie ray
Sunday, Jan 25 1998 1:31PM EST
Reply # of 19315
To Jay and all:
New York Times - today, 24 Jan 98
Choosing Between Phone and Cable for Internet Access
By NOELLE KNOX
<Picture: W>hen Wall Street learned last week that most of the Baby Bells were joining
with three computer giants to offer consumers superfast access to the Internet, there
were some short-term stock gyrations and some long-term speculation about the meaning
of it all.
The biggest question: Will the telephone companies or the cable companies win the battle
to offer this service?
------------------------------------------------------------------------
Related Article
3 Computer Giants Join Phone Companies to Connect to Internet at Warp Speed
(January 20, 1998)
------------------------------------------------------------------------
The new consortium, which is scheduled to announce its venture this week, so far
includes GTE and US West Communications, BellSouth, SBC Communications and
Ameritech, together with the technology giants Microsoft, Intel and Compaq Computer.
The companies hope to develop new modems and software that will be up to 30 times
faster than today's telephone modems.
The alliance wants these products on store shelves by Christmas, although some experts
suggest mid-1999 as a more realistic target. Whenever the sales start, the group, like
others that aspire to this market, is eyeing in particular those people who work at home,
telecommuters who need quick access to their employers' computer networks and heavy
surfers of the Internet.
One company happy about the initiative is Aware Inc., based in Bedford, Mass. The new
alliance has partly embraced Aware's technology for a "digital subscriber line," or DSL,
which would allow for high-speed data transmission over normal telephone wires without
the installation of special wall jacks by trained technicians. Shares of Aware rose about
27 percent last week, to $14.25 at Friday's close.
"Aware is a small company, and they happen to have a key component to make the
wishes of the consortium come true," said Michael B. Neiberg, a stock analyst for
Furman Selz, which helped Aware go public in 1996. "They are a big winner. Pairgain
could be another winner."
The stock of Pairgain Technologies, which has a DSL technology that differs slightly
from Aware's, rose about 10 percent last week, closing on Friday at $19.1875. Other
possible DSL players include Texas Instruments and Westell Technologies, although their
relationships with the consortium, along with Pairgain's, remain unclear.
Glad and Glum
The news last week of an alliance of telephone and computer companies to speed
Internet access pushed up the stock of Aware Inc., which has a technology important to
the group's plan. But the stock of At Home Corporation, which uses a rival system to
provide Internet access over cable lines, fell sharply.
<Picture>
Credit: The New York Times
------------------------------------------------------------------------
Some stocks sank on news of the telephone-based alliance. They include mostly
companies that have spent heavily to provide high-speed Internet connections through the
major alternative to phone wires -- television cables. Shares of the At Home Corp.,
which sells such cable connections, slipped about 16 percent last week, closing on Friday
at $22.3125. Scientific-Atlanta, which makes cable boxes, suffered about a 12 percent
decline and now trades at $14.9375.
Do these short-term reactions tell the long-term story? Michael Murphy, portfolio
manager for the Murphy New World Technology funds and author of "Every Investor's
Guide to High-Tech Stocks and Mutual Funds" (Broadway Books), thinks so.
"In the big bet between cable and telephone companies, the likely winner is the phone
companies" because their technology is designed to carry two-way traffic, Murphy said.
By contrast, "television cables were designed as one-way systems to broadcast to the
home," he said. "In order to have two-way communication, you have to rebuild the whole
thing."
Many analysts disagree, saying it is too early to write off cable. So far, about 100,000
people have signed up for cable modems, and service is available to about 10 percent of
the nation's homes. That is just a toehold, of course, but the cable industry has big
investments at stake and will therefore fight aggressively to increase its market share
and fend off the phone companies.
Moreover, Daniel H. Rimer, an analyst with Hambrecht & Quist, which took At Home
public in July, said: "At Home's advantage is that they've been thinking about this a long
time and they've got common agreements with all of their partners. You should invest in
what seems to be the solution with the most traction behind it."
Other analysts stake out a middle ground.
"As the market develops," said Beth Gage, a consultant for Tele Choice, a
telecommunications consulting firm, "the cable-versus-phone battle is going to be fought
in each local market, depending on how quickly the different players roll out services and
their pricing packages."
Whoever is right, the stakes may be large. Nobody knows exactly how many consumers
will switch to superspeed connections to make it easier to watch videos, listen to audio
and download large data files. One consulting outfit, the International Data Corp.,
projects about 2.5 million digital subscriber lines by the end of 2001. And projections for
the growth in cable modems range from three million to seven million.
Besides considering the obvious stocks involved, like Aware and At Home, how can
investors think about this potentially huge market? One strategy involves the trickle-down
effect: look for companies that are suppliers to the companies that you expect will profit
from high-speed Internet access.
If the new consortium looks like the winner to you, for example, consider Analog
Devices, which makes the computer chips for Aware, and National Semiconductor,
which makes similar chips.
"These chips are going to be turned out like jelly beans," Murphy said.
Companies that supply Internet-related equipment to Baby Bells may also see business
surge if the alliance prevails. Analysts mentioned Lucent, Northern Telecom, Motorola,
Newbridge Networks and Bay Networks as some big potential beneficiaries.
Second, safer strategy is to hedge: seek companies that will prosper no matter which
industry wins. Microsoft, for example, has bet on both the telephone and the cable
technologies. It is part of the new telephone-based consortium and it has invested $1
billion in the cable company Comcast, which owns part of At Home. Cox
Communications has also invested in both sides of the question, analysts said.
No matter which system dominates the market, high-speed Internet access should be a
boon for companies like America Online that provide the graphical interface and data
packaging for users of the Internet.
Online publishers, particularly those that are constrained by the speed of today's modems,
could also benefit either way.
"Speed just makes them more accessible and opens up programming options," said Paul
W. Noglows, digital media analyst for Hambrecht & Quist.
--Dave |
