DSL Prime: 50 Mbps Docsis, 200 Mbps GPON

Good plans to deploy real speeds, unless Wall Street prevents investment.

by Dave Burstein of DSL Prime and Future of TV [April 15, 2008]

"When you dream what is possible, and add a knowledge of physics, you make it happen."
—Charles Kohlhase, speaking of Arthur Clarke.

"His visions helped bring about the future he longed to see."
—Gerald Jonas, NYT

Brian Roberts dropped the bomb: 50 Mbps DOCSIS 3.0 available to 20 million homes in two years, upstream as well as down. Bravo to him for building a better network. The price is temporarily high ($150), but will likely come down. The marginal cost per home per month will be $10-12/month, virtually the same as today's cable modems. The price of 100 Mbps cable in France is about 20 euro. Verizon is pricing FIOS starting around $30, and they one day will unleash 200 Mbps GPON. (Yes, GPON is that fast.)

Randall at AT&T should be having nightmares. DOCSIS 3.0 real speed is 4 to 50 times as fast as any service AT&T will have for the better part of a decade. Their top tech people pointed out in 2003 that U-Verse was a big gamble, because it is far behind what DOCSIS 3.0 will deliver. Randall saved $10 to $20 billing by not running fiber. AT&T's capex is 30 percent less than depreciation. Great for current earnings and cash flow, of course, and Whitacre made $100 million or more in 2006 on his options and then retired. Underinvestment is not good for AT&T customers or the nation; it's still unproven what serves shareholders in the long run. Numericable in France is offering 50 Mbps to 2 million homes. Lots more on DOCSIS to come. Some of the technology isn't working, including the upstream, but it will soon be much better than you think.

Stephen Conroy issued an RFP for the Australian National Broadband Network, which will deliver minimum download speeds of 12 megabits per second to 98 percent of Australian homes and businesses, Graeme Lynch reports as I go to press. This would have been a major advance a few years ago, but is far less than Australia needs to match Japan or even the U.S. for the coming decade. Conroy is dangling billions in government funds, enough to fiber the country. He shouldn't settle for a second rate network, running 80 to 95 percent slower than Singapore. Any of my friends over there who can explain why Australia is making such an obvious mistake, please e-mail or call. Graeme followed with a note to me that the speeds to most homes will be much higher and I hope that's how it proves out.

More news coming. China is continuing to grow at about the same rate, India has an RFP out for 8 million modems, Alcatel has some good sales, and the Point Topic quarterly numbers are out. The Oman figures are much smaller, but I led with the Nizwa story to illustrate the long reach of DSL.

Next month, I'm presenting to the Wisconsin folks on "How to Beat Cable." Ideas always welcome.

992 new ADSL lines in Nizwa, Oman
Installations proceeding in Al Dakhliyah and Al Dahirah
Nizwa, an oasis on ancient trade routes, has a historic 17th Century fort surrounded by date palms. The Wali of Nizma still meets with subjects monthly at the fort. Goat auctions are held weekly. Alcatel has been providing 7300 model DSLAMs to Oman and Yemen. DSL is spreading in the middle east. Point Topic reports that Turkey added nearly 2 million DSL lines in 2007 and now has over 4 million. Algeria, Egypt, Morocco, and the UAE each have between 300,000 and 500,000 lines. Etisalat/Pakistan Telecom has just ordered 100,000 lines from Alcatel, which I hope begins good news for a beleaguered country.

A remarkable percentage of the world's best engineers are Muslim. Many of the finest I meet in our field are from Pakistan, Egypt, and Palestine.

Madness of Crowds on Wall Street: 24 Months From Now Doesn't Exist
Distorting real world investments
Wall Street didn't respond sensibly to Comcast's announcement they would accelerate the DOCSIS 3.0 rollout. That's a major problem for AT&T, so I was surprised AT&T went up after Comcast announced. Verizon, since it has invested in FIOS, should be better able to respond, yet the market gap between AT&T and Verizon widened significantly. 3.0 to tens of millions is big news, and DSL Prime was the only earlier report. Other than wireless, the coming DOCSIS 3.0 vs. U-Verse battle is the most significant factor in AT&T's earnings for the next five years, as well as the quality of the internet. Hodulik at UBS and Janazzo at Merrill have been discussing why DOCSIS 3.0 matters for years, so investors should have been watching.

The street has always been very short term oriented, but has gone to "madness of crowds" extremes lately. Among other things, they are putting extreme pressure on Comcast not to spend money, even if DOCSIS 3.0 is a wise investment. Brian showed courage by moving ahead. Fear of Wall Street and London's City is holding back necessary and sensible investments throughout telecom. In D.C., I learned that the carriers are all telling Congress they want to invest but can't so long as the market punishes them. The old economist had it right. Crisis in the realm of circulation (Wall Street) creates crisis in the realm of production (real world problems.)

It's of course irrational to value a stock based only on the next quarter or year, but it's been a winning strategy since about 2004. That creates a cycle. Investors over-emphasize short term earnings because other investors do so. Smart analysts jump in and recommend stocks likely to jump in months and put aside their own long run forecasts.

Collapsing home prices should remind us that bubbles always burst. This "forget the fundamental value of the company" approach is working well now. It will turn around, but I don't know when. In 1999, many got rich by buying tech stocks no matter how ridiculous the price. Three years later, a trillion dollars was lost with that strategy. I can't tell whether we are at 1999 or 2002 on this one. My best guess is it will take a while to turn around.

Note please: this prediction of big losses (one day) in stocks bought on current numbers alone is general, not about AT&T. To my surprise, Randall is doing many things right since he took over for big Ed.

Copyright 2008 Dave Burstein.
The DSL Prime Newsletter is reprinted with permission.

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