We’ve looked at Japanese bandwidth use in the past and concluded that widespread FTTH deployment is not creating a dramatic jump in bandwidth growth. A recent paper out of Japan with updated data reinforces this conclusion.
Ikanos reached an agreement to acquire Centillium’s DSL chipset assets for $12M. This is a shockingly low price and it sets a new valuation floor for telecom component revenue streams that most people in the industry, including us, viewed as annuity assets worth much more. It should also force investors to question whether company cash flows are being invested in new products that will generate superior returns.
Not a single day passes where we do not hear the mantra of a “Bandwidth Explosion” used to justify aggressive financial forecasts for equipment and component companies, carrier backbone demand models, even regulation or deregulation of the Internet.
Lacking in these sweeping statements is a reference to a crisp and concise quantitative explanation of traffic growth. This lack of hard data supporting this bandwidth explosion has weighed heavily on us, particularly because we have seen the damage that nebulous predictions of traffic growth caused in 1999-2001.
Everyone remembers the claims of Internet traffic doubling (even more prescient here) every 100 days in 1999? This was pure fiction, yet the political and investment communities accepted it because it was a useful tool for justifying the irrational activity underway. History does not repeat, it rhymes, and the “Video Bandwidth Explosion” sounds very similar to what was said in the Telecom bubble.
Using data from the Japanese Ministry of Internal Affairs (MIC) one can draw conclusions about the growth in Japanese Internet traffic on a per subscriber basis. The conclusions are not what you would expect given the advanced nature of broadband in Japan, and are troubling when compared with image created by the market.
The Japanese Ministry of Internal Affairs and Communications is a great source for data on Japanese communication infrastructure and usage. A recent document provides a state-of-the-network update and lays out the goals for the next 3 years.
I haven’t been shy about my prediction that GE-PON would trump GPON deployments and so far I’ve been right. The dominance of GE-PON continues, with large deployments planned or underway throughout Asia. Verizon (VZ) is the only carrier deploying BPON/GPON in size though some activity is promised in Europe. We shall see.
Let’s take a quick look at the state of the photon.
People tout the big benefits of fiber but refuse to allow those who put capital at risk to make big profits. They seem to be afraid that someone, somewhere, might actually make some money.
A report from the Broadband Stakeholder Group summarizes ongoing worldwide fiber to the home (FTTH) projects . The report highlights the need for FTTH in the UK, something BT (BT) has steadfastly refused to do.
I cannot blame BT- asking them to deploy an expensive network and then be forced to lease it out to competitors (with no downside investment protection of course) is a ridiculous thing to expect of a profit driven entity.
This acquisition is surprising. Cortina previously focused more on the core of the network and has either built or acquired products designed to enable the next generation of WAN equipment for carrier applications. Immenstar is tightly focused on fiber to the home chipsets, a much more access oriented application. I suspect that Cortina is looking to couple it’s carrier class ethernet solutions with Immenstar’s high density OLT solution. Still, it is not a pretty fit.
The WSJ today has an exclusive look (free version of article here) at a report to be released by CableLabs that outlines the potential need for cablecos to undertake a massive infrastructure upgrade in order to stay competitive. Unfortunately, the report is not yet available to non CableLabs members,
though we would sure like to get our hands on one (HINT HINT HINT) and CableLabs has informed me it never will be.
The report, which has been reviewed by The Wall Street Journal, warns that at present growth rates cable operators’ existing technology may not be able to compete efficiently with Verizon on Internet services. “At some point, optimization of the (cable) network becomes more expensive than simply deploying” fiber directly to homes, the report warns.
Centillium Communications (NASDAQ CTLM) has a troubled past and present but the market has mispriced even the most pessimistic scenarios at this point, short of accounting fraud. With proper investor activism this value could be extracted through consolidation, liquidation, or private turnaround scenarios.
What we’ve learned
In this fifth and final installment we will examine what questions remain that prevent accurate forecasting of PON deployments in China.