NTT
Ikanos Buys Centillium DSL Assets
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.
The Bandwidth Explosion Myth
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 Proving Ground of NTT
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.
State of the Photon - Global FTTH Activity
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.
FTTH Stakeholders /= FTTH Shareholders
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.
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Cortina Acquires Immenstar
Cortina has agreed to acquire Immenstar. I’ve written about both companies extensively (See here and here).
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 Cablecos are Waking Up to Reality
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 - Cheap by any Measure
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.
The Future of FTTH in China - Part V
What we’ve learned
- Part One - A radical change in demographics is creating an optimal situation for a fiber build out in China
- Part Two - GE-PON has taken hold in other countries with similar demographics
- Part Three - The economic and market conditions appear to favor GE-PON
- Part Four -The activities by the largest Chinese Telecom actor reinforces this choice
In this fifth and final installment we will examine what questions remain that prevent accurate forecasting of PON deployments in China.
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The Future of FTTH in China - Part IV
This is part IV in a continuing series. Part III can be found here.
Enter the Dragon
China Telecom (CHA) recently assembled a very quiet, closed door session of suppliers in order to orchestrate implementation of several extensions to the IEEE 803.3ah GE-PON standard. This event has gone totally unreported in the press. Obviously, knowing which companies attended would be valuable- this is what I have been able to conclude.
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The Future of FTTH in China - Part III
This is part III in a continuing series. Part II can be found here.
We believe China Telecom (CHA), as well as other Chinese actors, will choose GE-PON. They are motivated by factors that transcend technical specifications, factors that matter most to the selection process.
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The Future of FTTH in China - Part II
This is part II in a continuing series. Part I can be found here.
Technology Selection – GE-PON vs. G-PON
Chinese carriers will be forced to select between two competing standards for Passive Optical Networks (PON) for Fiber to the Home (FTTH) Deployments.
The Future of FTTH in China - Part I
Fiber to the Home (FTTH) and Passive Optical Networks (PON) in particular have received an inordinate amount of attention from the financial community in the last year. Attention has been focused at every level of the value chain, from component companies that make chips and optics to Telecom Equipment and Set-Top box makers to Carriers who are deploying services like IPTV over a new fiber infrastructure. The resurgence in the market performance of optical stocks was (incorrectly we believe) attributed to FTTH and other broadband services.
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NTT - Hedge Your Dollars
The Dollar has been in a free-fall against the Yen. There are a number of reasons, most related to the coming end of ZIRP and the repatriation of massive amounts of Japanese capital that was borrowed for nothing and invested offshore. The reasons are beyond the scope of this blog but sentiment appears to be turning against the dollar.
AMCC demonstrates GPON MAC
AMCC (AMCC) demonstrated a GPON chipset in a Xilinx FPGA at OFC in Anaheim. No announcement (that I saw) was made, and no press was in Lightreading.
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NTT GE-PON ONU Hardware BOM
Are you ready for some Japanese ONU install and hardware pr0n? This is excerpted from research we did on Passave (PMCS).
All photos and component data (click to enlarge) are courtesy of a Japanese web page. I used Google to translate the page - available here. (I don’t think human translators have much to worry about yet). Zoro, whoever you are, thank you.
NTT Video FTTH
NTT has partnered with SKY Perfect communications to create a new company called OptiCast (.pdf link) that will focus on delivering Video over the fiber NTT is rapidly installing throughout Japan. OptiCast will be a joint venture between NTT East/NTT West and SKY Perfect, a CATV company with about 4MM subscribers.
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