Caught in the Internet Neutrality Storm: How Google and Verizon May Help Allot

Includes: ALLT, GOOG, VZ
by: Shlomi Cohen

Among the Israeli firms which I hold in my portfolio tracked by "Globes" is Allot Communications Ltd. (Nasdaq:ALLT), which reported results Tuesday.

Allot specializes in technology which becomes more critical each day for Internet providers, both mobile and wired. The technology is called DPI (deep packet inspection). At a time of an explosion in video content going over broadband, especially wireless - because of smartphones, only platforms that know how to differentiate in real time every spark of information that travels across the Internet - or in the language of the Internet, each "packet" of bits - and can manage that information, can bring the networks to operational and financial optimization.

Allot, managed in recent years by CEO Rami Hadar, is among the few companies in the world which deal primarily with DPI. Behind the innocuous professional term, a battle has been raging for quite some time in the US, centered on "Internet neutrality". The connection between the two terms is that if an Internet service provider uses DPI technology like Allot's to provide faster and more efficient broadband to one customer, which for example conducts business video conferences on the Internet, and pays more for that, than to another customer who casually watches clips on YouTube, - that is a practice which is illegal.

US carriers, who own the networks, like Verizon (NYSE:VZ) or AT&T (NYSE:T), claim that on one hand they are asked to invest billions of dollars to improve the broadband infrastructure because of the overload of the video era from smartphones, yet on the other hand their hands are tied by not allowing them to use DPI, meaning differential charges, due to claims of discrimination against customers.

Among those championing Internet neutrality is Google (NASDAQ:GOOG), whose interest is clear - that everyone should use the Internet as much as they want, without any discrimination, even at the expense of network owners, because Google makes its money from advertisement.

In recent days there have been articles which say that despite everything, Google and Verizon reached a technological solution which will allow using DPI. If that is the case, and Congress doesn't prevent it, then maybe the US carriers market will open up soon for Allot. In the meantime it is doing quite well in Europe and Asia, where there are no limitations on DPI.

Last month investment bank Rodman & Renshaw gave Allot a "Buy" recommendation, with a target price of $5.80, about $0.75 higher than its current price.

Disclosure: Author holds shares as part of his portfolio tracked by "Globes".

Published by Globes [online], Israel business news - - on November 17, 2009; Reprinted on Seeking Alpha with permission
© Copyright of Globes Publisher Itonut (1983) Ltd. 2009