Vyyo Technology Crucial to Cable Network Improvement

| About: Vyyo Inc. (VYYO)

A majority of cable network operators will employ DOCSIS 3.0 compliant equipment by 2011 in order to increase bandwidth. However, certain operators will need more bandwidth than the DOCSIS 3.0 equipment will deliver and will also incorporate Vyyo’s (VYYO) technology into their network. Case in point, StarHub is using Motorola’s (MOT) DOCSIS 3.0 equipment and Vyyo’s equipment in order to create a 1Gps network. There are two other small players that compete with Vyyo: Narad Networks and Scientific Atlanta. However, these two players offer products that only increase the bandwidth of Ethernet on the network. Vyyo’s technology also increases the bandwidth for High Definition.

Industry Outlook

With Verizon (NYSE:VZ) laying down an all fiber network and Direct TV on track to offer over 100 high definition channels, it is clear U.S. cable operators must upgrade their network in order to be a worthy competitor. Foreign cable operators are also not exempt from a network upgrade either. Bandwidth has become the lifeline of the digital economy. Foreign nations will require larger data pipelines in order to compete effectively in the global economy. The only question that remains is how the cable operators will add bandwidth and who will benefit.

Current Network Structure

The majority of cable operators have a hybrid fiber-coaxial network. This type of network incorporates high speed fiber optic cable and low cost coaxial cable. The fiber originates from the cable operators mater headed and is sent out to a fiber optic node. Each fiber optic node is connected to 25 to 2,000 RGU’s and use coaxial cable to distribute the signal to the RGU’s. The benefit of using coaxial cable is that it is significantly less expensive than fiber optic. However, coaxial cable offers drastically less bandwidth. In the past coaxial cable offered enough bandwidth for the end user. However, HD TV, VOIP, and streaming video have begun
to reach the current capacity that coaxial cable has to offer. However, cable operators have the ability to increase bandwidth to meet future demand through either managing current technology more efficiently or incorporate new technology within the current network to increase bandwidth.

Upgrade Options

If an operator chooses to manage their current network more efficiently, they can accomplish this through three ways. The first is to “cap” the amount of bandwidth each household can use and to offer fewer services. However, with many households beginning to have the option to switch to Verizon’s high-speed FIOS, customer turnover rate would significantly increase if cable operators implement restrictions on customer’s service. Operators also can decrease the amount of households connected to each optical node. However, doing so would require more optical nodes and a redesign of the network layout. The last option would be to send fiber optic to each household. However, this option of laying fiber to each house is expensive and most cable operators would choose this option in highly dense business areas that generate more revenue than homes.

If a cable operator decides better network management will not increase bandwidth significantly enough, they can also install new equipment within the network that is able to send more data on coaxial cable. The cable industry has recently designed specifications that equipment manufactures should adhere when designing their equipment. The specifications are known as DOCSIS 3.0. This standard will offer a minimum of 160Mbps downstream and 120Mbps upstream. This standard call for a Cable Modem Terminatino System that is located at the headed and customer premises equipment that is located at each RGU. Manufactures of this equipment include Motorola, Texas Instruments, Cisco, BigBand, Broadcom, Intel, and others.

Vyyo's role

Vyyo has designed technology that allows cable system operators to provide more bandwidth-intensive services to their customers. Their product lineup includes nodes, amplifier, splitters, and passive elements. Their technology is also compatiable with DOCSIS equipment. Recently, Vyoo teamed up with Motorola to test a high speed network with StarHub. StarHub is a Singapore cable operator. StarHub is currently bidding for the Singapore government’s Next-Generation National Broadband Netowrk that will provide bandwidth speeds up to 1 gigabit per second using Vyyo’s technology.

It is estimated that 60% of cable network operators will adopt DOCSIS 3.0 equipment by 2011. This equipment will provide significantly more bandwidth than current standards. However, if network operators believe the DOCSIS 3.0 equipment will not provide enough bandwidth, they can also incorporate Vyyo’s equipment into the network. StarHub is a great example of using DOCSIS 3.0 and Vyyo’s equipment in order to reach the 1 gigabit per second rate.

Other Players

There are two other small players in the network improvement industry; Narad Networks and Scientific Atlanta. Both of these players offer Ethernet switch technology to increase bandwidth. Cablevision recently chose Narad Networks develop a network that delivers 100 Mbps Ethernet to 4.4 million customers. However, it must be noted that Narad Networks technology does not allow network operators to increase the amount of High Definition channels, whereas Vyyo’s technology does.

Recent Corporate Event for Vyyo

On March 28, 2007, Vyyo close financing of $35 million with Goldman, Sachs & Co. $17 million will be use to payoff outstanding debt and $17 million will be in the form of convertible debt.

VYYO 1-yr chart

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Disclosure: none