A friend of mine just sent this to me:
Jason,
I Like Qwest in the 100 range. It's a nice feeling! Agree.
Marc
Off the message board....
Qwest Communications / QWST -- Part II
So Morgan decided that it was time to upgrade Qwest yesterday...
How exciting.
But to be fair, let's give them credit for noticing that the stock was up
about ten points last week in an admittedly nervous tape.
Not to mention that a review of The FMB's Qwest column, which, of course,
was written at the beginning of last week, was noted.
What a surge of insight that must have caused.
But on to other matters...
Given this one took me by surprise in terms of its popularity, I thought
that a further look into the issues surrounding QWST's business going
forward, along with disputing a few of the common misconceptions, was
merited.
Off we go.
First of all, let's conduct a quick review of the basics.
With a lot of bandwidth coming online, such as, for example, Project Oxygen
(an undersea and terrestrial fiber optic cable network in 2003 which is 6x
QWST's capacity), one wonders if there will be a glut. In fact, to be a bit
more specific, since 1985 there has been a 4000 fold increase in capacity
--something that makes Moore's Law (which gives "only" a 1000 fold increase
in CPU processor speed) look shabby.
But the real answer to the question here cannot be answered until one looks
at the other side of the equation as well.
Which is none other than...
Corresponding demand.
So if you remember nothing else, remember this.
Demand for bandwidth is exploding faster than supply.
For example, to quote one statistic, traffic over the UUNET backbone is
doubling every quarter.
That's right, every quarter.
So what does all of this mean?
The answer is very simple. What it means is that in four years we will need
64 thousand times as much bandwidth as we are currently using today.
However, it should be noted that even if the above is not immediately
believable, demand for bandwidth will still far outstrip supply.
And that would be because...
The move to video and voice over IP.
Let's look at what video over IP needs in terms of bandwidth.
At 50:1 compression rates, one needs 50+ Mbits/sec (about 1000 times what
your modem can supply) bandwidth to transmit one TV signal. Thus, when
digital TV arrives (and it will arrive first via your cable company given it
is easier and cheaper to get a new box rather than a new TV), and if only 1%
of the total cable population signs up for digital cable, I'll let you do
the numbers as to what this means for demand for highly efficient bandwidth.
In addition, I would also like to make the following point:
QWST will be, and you can quote me on this, a money machine.
That is, once the infrastructure has been laid, QWST's ability to generate
cash will be quicker than almost anything else you have ever seen.
And, to borrow from an earlier statement, that would be because of:
1: Video on the 'net
2. Voice over IP.
It's that simple.
If you would like an example of how quickly it is to generate cash and
profits once the bandwidth is up and running, try looking at Teledesic,
Billy G. and Craig McCaw's plans to put up 280 satellites at the cost of $9
billion to supply broadband Internet access.
Quite the lofty goal.
But perhaps what is even more incredible is that once up and running in
2002, the company has stated they will break even in two months once the
switch is turned on.
That's right, two months.
And, just to take the conservative point of view on this one, even if those
two months turn out to be a year, that is a pretty fabulous model to have.
Finally, as I wrap this up, I would like to highlight one of the above
drivers for QWST: video over IP.
Otherwise known as a big eater of bandwidth.
Otherwise known as great for QWST.
Even if you are a bit skeptical on this one, feel free to remember the
following stat: by 2002, 10% of all calls will be placed over the 'net.
Plus, it is always helpful to recall that with the rise of the digital
cellular phone, it will become commonplace to have all of those long
distance calls placed over the net.
Not to mention that audio, even though taking over a factor of 100 less in
bandwidth than video, makes up for such in volume.
So as I wrap this up, the important point to remember with regards to QWST
and bandwidth in general are the following:
1. Demand for bandwidth is growing at an exponential rate, while supply is
growing at a linear rate.
2. With other bandwidth plays such as WCOM who have a lot of capacity, one
must note that this capacity is older and thus has higher maintenance costs
than QWST's.
Translation: higher prices for users and not necessarily compatible with
newly emerging component standards. |
