Two Plays on the Death of Net Neutrality - Barron's

Includes: ALLT, CSCO
by: SA Eli Hoffmann

Annotated article summary from this weekend's Barron's. Receive all our Barron's summaries by signing up here:

Here's How the Drama Over 'Net Neutrality Ends by Bill Alpert

Summary: The Net Neutrality lobby was born out of the fears of giants like Google (NASDAQ:GOOG) and Yahoo (NASDAQ:YHOO) that traffic to and from their websites would be discriminated against by phone or cable carriers. But times have changed, Technology Trader Bill Alpert says, and as internet-based video pushes towards high-definition, the reality of bandwidth demands means content providers like Google's YouTube and Vonage Holdings Corp.'s (NYSE:VG) VoIP services are starting to look at ways of appropriating the bandwidth needed to make their services run smoothly. Networking stocks like Cisco Systems Inc. (NASDAQ:CSCO) and Juniper Networks Inc. (NYSE:JNPR) are simple plays on the increased need for bandwidth. But a more specific play on the death of Net Neutrality is through the Deep Packet Inspection [DPI] protocol, through which carriers can evaluate and prioritize Death of Net Neutralitytraffic crossing their networks. Cisco, through its p-cube acquisition in 2004 (for $200 million), is the largest DPI vendor. Another DPI leader "selling at a bargain-basement price" is Allot Communications Ltd. (NASDAQ:ALLT), whose shares shed $2 (from $9 to $7 last week) on a sales shortfall warning. With $80 million in cash and a $145 million market cap, the market is giving the company a $70 valuation -- just 1.5x this year's sales (compare to 7x this year's sales for Canadian-listed competitor Sandvine). Barron's:"Cisco may get its big share of DPI installations, but there's plenty of non-Cisco infrastructure out there. Allot and Sandvine will surely get their share, too."

Related Links: Wikipedia on Network NeutralityAllot Will Have to Contend with Cisco in DPI SpaceWill Internet Companies Have to Share Profits With Telcos?Internet Service Providers: Is Net Neutrality Hurting or Helping?

Cisco 08 04 2007 Chart Allot Communications 08 04 2007 Chart