Small Telcos Might Not Be Enough for APA & Occam

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How Niche Telecom-Gear Vendors Plan to Gain on Network Upgrades

Summary: Besides telco giants like ATT (T) and Verizon (VZ), there are about 1,100 small local telephone companies that have been upgrading their networks in order to provide television over their fiber-optic lines. Equipment suppliers that target these small telcos are also much smaller than major equipment provider such as Lucent (LU). APA Enterprises (APAT) and Occam (OCNW), niche suppliers to the local telcos, had sales last year of $15.7 million and $39 million, respectively (Lucent had $15.44 billion in sales). While spending on fiber upgrades and Internet protocol television (“IPTV” – technology to provide television over high speed Internet) equipment has been flat this year, analysts are expecting sales to at least double by 2010. Nevertheless, there are doubts whether these small equipment vendors can grow profitably over the long haul. According to Patrick Pfeffer, chief network architect for telecom consulting firm Detecon, “Telco TV is a game of numbers … Because of the scale issues, the suppliers will never be able to make money serving the rural companies alone." Read full article >
Related links: Fiber to the Home: A World of Headaches for Comcast • AT&T's Project Lightspeed -- Too Little, Too Late • News Corp. Looks to Dump DIRECTV • Wikipedia: IPTV

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[Emmett Smith:]

Don't forget that, not too long ago, AFC had a very successful IPO based on its revenue from just over 250 small Telcos. While Telcos typically resist change because of revenue from basic rates and ROI concerns, the conversion to IP is in its infancy and the market will grow exponentially over the next 5 years. TelCos are just now in the process of proving the technology for themselves. 80% of the TelCos have said that they will be converting to IP and, while 10 years from now 80% of the TelCos will not have converted, the conversion will occur faster than normal as a result of increasing technology and competitive pressure. The first ones to convert and the largest market will be with the IOCs.

2006 Sep 21 03:06 PM