Posts filed under ‘Cable/Telcos’
Another Nice Ceragon Quarter
Ceragon Networks was out today with 1Q08 results: Revenues $47.2M (up 39% year over year) and pro-forma EPS of $0.13, up 30% from 2007. (Net income rose 63% over 1Q07, but share dilution from last Fall’s secondary offering reduced the bump in EPS.)
Israel’s Ceragon is a favorite of mine, arguably the best “pick and shovel” play on the growth in mobile data. It’s backhaul radios are used in both WiMax and Cellular networks, and are leading edge in technology.
The stock’s been beat down mercilessly, largely due to Hedge fund shorts piling onto a very high price last Fall, as well as the dilutive stock offering. Still undervalued at todays prices, in my view (up 7% today in pre-market trading).
Conference call is just starting, I’ll add more if there’s anything interesting.
Disclosure: I hold no position in Ceragon Networks.
No Waders Needed
I’ve commented before, here and also here, about P2P traffic, net neutrality, and broadband ISPs.
Nate Anderson at Ars Technica has a long, detailed, but very comprehensive post concerning the Internet and capacity concerns, including whether the Internet will crash due to a catastrophic “exaflood” of data.
He interviews Andrew Odlyzko, of the Digital Technology Center at the University of Minnesota. I met Andrew some years ago, and he is as authoritative as they come on the Internet.
For those lacking the time, here are the Cliff Notes:
- To paraphrase author William Gibson, Internet capacity is more than adequate, it’s just not evenly distributed.
- Upstream bandwidth from consumers is the key bottleneck, but gradually the ISPs will be forced to make their networks more symmetric.
- While it’s true a small minority consume the majority of local bandwidth (hello, ever hear of Pareto’s rule?) it turns out it’s not always the same minority.
- There’s as least as much politics in the Net Neutrality debate as there is business. Or science.
While the concept was not discussed in the article, I still maintain that in the absence of competition, U.S. providers will begin moving to a pay-per-byte model as capacity strains in local networks increase. But this could change if the telcos and cable providers butt heads in more markets, or some form of wireless gains traction at scale.
Ultimately, populist politics and public opinion will continue to vie with telecableco lobbyists and PR experts before meaningful progress in the last mile occurs.
Anyone who really wants to gain a better understanding of this issue would be well served by reading the whole 4-page article.
Don’t Bug Me
Michael Learmonth over at Silicon Alley comments on a NY Times article about how NBC is seeking to get advertisers to sponsor entire shows, as they did in the early days of television. It’s an attempt to help bypass the impact of TiVo-like ad skipping.
While the expectation is that sponsors will have some input into the show, I think the ultimate model is a bit less…. participative.
Expect to see TV shows broadcast with corporate logo “bugs” included. You know, those little icons in the bottom corner of the screen that are somewhat intrusive but usually bad only when they cover something you want to see. One or more sponsors could purchase a certain amount of bug time during the show. It might not stop piracy, but it would mean TiVo viewers can’t completely avoid the messaging.
What’s more, with the advertisement now firmly attached to the video–sort of a cross between a product placement and an ad–the networks may be able to grab more coin from sponsors, as the ad would travel with the video wherever it was syndicated (cable, TV, web, even reruns).
MacroStar: Vision or Hallucination?
This morning Macrovision (MVSN) reported it has completed the divestiture of its software business, including the FLEXnet and InstallShield product lines, raising $200M. With the previously announced sale of its games unit to RealNetworks (RNWK), Macrovision is well on its way to completely transforming its business. What remains is to consummate the merger with Gemstar/TV Guide (GMST).
The company believes that with the cash raised from these recent sales, it has reduced the amount of debt needed to finance the Gemstar purchase by nearly 20%, to just $650M. Expect to see a good portion of this remaining debt retired early, as Macrovision spins off non-strategic portions of Gemstar once it’s folded in–notably the TV Guide print business, which I believe is orthogonal to MVSN’s core strategy. This could significantly shorten the loan payback on the purchase from the 2011 date CFO James Budge originally estimated.
That all assumes, of course, that the deal goes through. Many Gemstar shareholders were none too happy when the merger was first announced in December. Ditto many Macrovision investors, who either did not understand or did not believe the vision management articulated. I would argue Budge and CEO Fred Amoroso did a poor job of explaining it at the time, using lots of effusive, scripted prose but leaving behind what felt like a distinctive snake oil residue.
However, there is a method in the madness here, a bit more visible now that extraneous bits have been spun out. The key is to understand Macrovision’s three key constituencies: Hollywood studios, consumer electronics manufacturers, and cable companies (MSOs). Traditionally, the studios paid for copy protection, manufacturers licensed the tech for VCRs and DVD players, and MSOs paid to ensure compatibility between studio copy protection and their headend gear. Great high-margin cash business. All good.
But a year or so ago, Macrovision acquired Mediabolic, which gives it technology to enable (copy-protected) video transfer between PCs and multiple devices within the home. Say, to cable set-top boxes. They have already signed Scientific Atlanta (CSCO) as a customer, and I believe either Motorola or NDS is also on board.
Next, they bought All Media Guide, which provides metadata for video and music. By acquiring Gemstar, Macrovision gains television guide info–again, metadata. MVSN can now license both algorithms and information to device manufacturers and cable companies, while helping Hollywood protect its content wherever it is transferred. In the bargain, consumers would get a seamless home video capability.
Your existing set-top box becomes a media hub. Can you say “AppleTV“? I knew you could.
Arguably, Macrovision has made some missteps with its strategy in the past. The software business had low margins relative to MVSN’s licensing unit, and games was pretty much a bust. But unlike many firms, it has been fairly quick to recognize errors and dispose of losing businesses. And this vision, however poorly spelled out by management, feels right.
Based on April 1 closing prices, and assuming no change in the original terms, the Gemstar deal is now valued at about $2.22B, 21% below the original $2.8B figure but slightly above the current market cap. This compares to a 9% drop in the S&P500 over the same period, and largely reflects the poor reaction of traders to both sides of the deal. The SEC just declared the S-4 effective and proxies are being mailed out. As both boards are already signed up (including Rupert Murdoch, with 41% ownership), it looks like the merger will go through.
Given the margin expansion that will follow the spin out of the poorer performing Software and Games units, Macrovision may be somewhat undervalued, even allowing for the anticipated share dilution. But for Gemstar investors who believe this vision could become reality, there’s substantial upside post-merger if the firm can execute properly.
Disclosure: Author holds no positions in either Macrovision or Gemstar.
The Broadband Salad Bar
The Wall Street Journal reports this morning (article, paid subscription required) on talks between Comcast (CMCSA) and BitTorrent, Inc. to make nice over Comcast’s admitted blocking–excuse me, “delaying”–of bittorrent generated traffic.
At first glance it seems a rather ham-handed attempt to mollify Comcast critics. The WSJ and others are reporting it as a fairly straight up development, if something of a backpedal by Comcast. But these miss the point, I think, sidetracked by conspiratorial discussions of “net neutrality” and how the big bad telecablecos are angling to limit our choices, take over the world, and generally do evil.
Do I believe the big ISPs want to control content (or access to it) as well as the pipes? Absolutely. There’s gold in them thar hills! None of them want to be limited to connectivity or bit delivery services. But will they succeed? Is the above fictional ad to be our broadband future? I doubt it. Anyway, it’s beside the point.
There’s another motive for ISPs to manage bandwidth on their networks–it’s a finite resource. No, Virginia, there is no unlimited bandwidth. You can talk all you want about Moore’s Law, etc. Bandwidth ought to be cheap. In a perfect world–or Asia–it is cheap. But not here, not without real competition.
The telecablecos have promised this always-on, flat-rate, high-speed internet access. It was a fiction created by the need for market share, and by consumer demand for a broadband salad bar. All-you-can-eat, with a fixed price. Sounds wonderful. But it could never have lasted since the infrastructure is largely shared and was built on the expectation that demand would be low (or at least intermittent).
Now the growth of video is stealing the condiments, and file sharers are sneezing in the salad.
There’s no free lunch. So you do one of two things. Limit how many trips each patron can make for salad. Or charge them for each trip. Comcast has tried the former. My bet is on the latter.
You believe it’s a fantasy? That no one will go for tiered or bit-based pricing? Think again–Time Warner (TWX) is already trialing it. And the more successful we are at regulating the ISPs to ensure net neutrality (in the absence of competition), the more likely it is we’ll see pricing by the byte.
iPhone Doesn’t Drive Mobile Usage. But AT&T Might.
According to a recent study by M:Metrics, summarized here, Apple’s (AAPL) iPhone is having a dramatic effect on mobile web usage.
Per senior analyst Mark Donovan: “Beyond a doubt, this device is compelling consumers to interact with the mobile Web, delivering off-the-charts usage from everything to text messaging to mobile video.”
Hmm.
Even more breathless praise for the iPhone: “This data indicates that the iPhone’s widgets are an effective means to drive mobile content consumption,” observed Donovan.
The numbers seem to back up the claims:
- 85% of iPhone users accessed news/info via browser, vs. 58% of smartphone users and 13% of all cellphone users
- [a "staggering"] 31% of iPhone owners watched mobile TV or video (vs. 4.6% market average)
- 59% used web search vs. 37% of smartphone users and 6% of the general mobile population
This would all be nice if it actually said anything about causality. It doesn’t.
It is equally possible (more than likely, I’d guess), that iPhone users are self-selected for this usage pattern. Call them early adopters, technophiles, whatever. People who use–or would like to use–the web more often are among those most likely to buy an iPhone. There’s no evidence whatsoever in this study that indicates the iPhone itself is driving greater usage. (It may be making it somewhat easier or more elegant for those who are so inclined, however.)
In fact, there’s no data here that indicates mobile web usage has grown at all. For all we know it shrank last year. (Yeah, I know, I don’t believe that one either.)
Sort of like a Dear Abby survey that shows women overwhelmingly believe something (e.g. breastfeeding is best) when all it really shows is that belief is held among people who write to Dear Abby.
Even if you assume the iPhone is a causative factor, consider this: Apple’s U.S. market share is on the order of 1%. Given the size of the U.S. mobile market, there’s no way that’s having a significant impact on mobile internet usage. If we assume 200M U.S. mobile users, M:Metric’s numbers imply 26M accessing the web via browser; iPhone users account for 1.7M of those. It’s difficult to believe most of those 1.7M weren’t using the internet on their old phone.
What would have been interesting is to show the deviation–if any–from the trend in growth that has occurred since the debut of the iPhone.
None of this is to say the iPhone isn’t a great smartphone, or that its sales won’t increase. I’m only throwing cold water on the claim that Apple is singlehandedly driving up mobile internet usage.
I did find one quote interesting, though: “… all iPhones on AT&T (T) are attached to an unlimited data plan. Our data shows that once the fear of surprise data charges is eliminated, mobile content consumption increases dramatically, regardless of device.”
Now that I’d believe.
When Down Becomes Up
Silicon Alley Insider has a short interview with BitTorrent CEO Doug Walker about plans to entice the media Big Boys to use BT’s peer-to-peer delivery service. Walker claims he can undercut the likes of Akamai and Limelight Networks.
P2P does a great job of file transfer. Streaming? Not so much.
Streaming via P2P doesn’t use any less bandwidth that streaming directly. It just uses somebody else’s bandwidth. So yes, it can be “cheaper”, but this is virtual savings, not real savings. Once P2P streaming delivery gets big enough–if it ever does–the ISPs will step in and demand their share. This is what the whole net neutrality thing is about. In fact it’s already happening, with Comcast selectively blocking some P2P clients. Even if there’s no direct royalty to the telcablecos, sooner or later their bandwidth gets chewed up, and then they raise prices to consumers.
This thing won’t scale. It runs up against the fundamental problems of the Internet in the U.S.: lack of edge capacity and asymmetric bandwidth.
Most internet connections are designed to be timeshared. Your advertised 2 Mb/s (or 10 Mb/s) link only gets that kind of speed if no one else in your neighborhood is using theirs. Cable systems often have a 500:1 share ratio. Even DSL is shared in a way, limited by capacity at the DSLAM in the central office (and it’s typically slower to start with). Which all works fine for web pages where it’s a quick download between idle times. But video streaming of any kind runs into real problems with enough simultaneous users, because there’s a minimum sustained rate that must be achieved to avoid jitter and/or buffering.
What makes the problem worse for P2P is that almost all internet connections are asymmetric; the upstream bandwidth is an order of magnitude slower than downstream. This is because the phone and cable companies–with their heads firmly in the sand–never envisioned the internet as anything other than a way to shove increasingly expensive media down consumer throats. That is, after all, the model they were founded on. But P2P and User Generated Content are turning that notion on its head.
So we have too little bandwidth, and it’s increasingly pointed in the wrong direction anyway.
Streaming via P2P works fine on a small scale (Joost’s beta wasn’t half bad; but notice how the more users it gets the less you hear about it?) And P2P is great for file transfer since there are no latency/buffer issues. Just don’t expect it to be the answer to video delivery for consumers. Conversations with executives at the likes of Akamai (who has their own P2P technology) have confirmed peer streaming will likely be limited to private networks where there’s greater control over the protocols and the bandwidth.
Don’t get me started on streaming vs. download, and why the latter is better because storage is cheaper than bandwidth. That’s a subject for another post.
Beginnings (apologies to the Allman Bros.)
Well, here we go. After several years, and numerous suggestions by friends and colleagues, I’m taking the plunge. Guess I’ve got things to say, and need a rooftop to shout from. Wish me luck.
by Michael Mauboussin
