I have spoken with many service provider executives as well as venture capitalists and entrepreneurs and I have read countless blogs and papers on advertising revenues and the shift from old media to new media. I think it can all be summarized by the following: the companies with broad user bases, distribution ability through content applications (i.e. video, voice, gaming, search, etc) and who have the ability to narrow advertising bands to small units, ultimately a unit of one, are the revenue winners.

(1) IPO was the first of several equity events (i.e. secondary or debt),

Two conclusions are clear from reading, listening to AT&T presentations and discussing the program with people who are familiar with deployments of the IPTV architecture by AT&T.

---------- Forwarded message ----------
From: Mark O'Rourke
Date: Mar 21, 2007 1:04 PM
Subject: Sprint (S)
To: wrkoss

Bill,
You're an idiot. Get some sleep. You'll feel better.

I would expect to see an S-1 filing from GenBand within weeks of the closing of the deal. In fact, if I was running GenBand, I would have a team of bankers working on a pre-closing proxy filing of an S-1 today.

The good news for GenBand is they have enough revenues to go public. The bad news is they have a cost intensive R&D model. It will be interesting to see if GenBand can manage the OPEX on the R&D side.

Here is a link to an article that states Sprint (S) is testing a flat rate, all inclusive usage plan in the San Francisco area.

Investors need to remember three points:

Revenues will remain strong for 2007 as they have supplied about 10% of the potential Verizon (VZ) sites with their switched video product. The only concern with Verizon is that BigBand has a single application in a single product silo (e.g. FiOS). It is an excellent product silo in which to have a win and was a key enabler of the IPO, but long term they need to be concerned about competitors. C-Cor recently announced a competitive product to BigBand (i.e. GAMP3) in the switched video market and RGB Networks is a startup competitive funded by KPCB.

If Tekelec can unload the Switching Solutions Group [SSG] or simply close it down, the company is nicely positioned as a PE-buyout target or acquisition target by a mid-tier public company looking to augment service provider revenues with annual revenues in the $425-500M range at attractive margins. I am not surprised that the leadership team appears stalled in their decision making process in regard to the disposition of the switching division. From one perspective they can see an under performing asset with a long market run in front of them, but the other perspective is that they are undercapitalized to make a run the C5 replacement business.

As I am typing this post, Riverbed has a $1.98B market cap and Acme Packet has an $878M market cap. Not bad for companies who have quarterly revenues in the range of $36M and $25M respectively. I took the time over the past few days to read all three S-1s as well as talk to a number of people about BigBand, Starent and Infinera. When you read an S-1, they are full of risks, conditions, warnings and disclosures that can scare the most bullish investor. In practice, stating that you have competitors with a longer operating history and better brand name is not really news or risk that is going to scare an investor. Here is my take at separating the real risks from the stated risks:

My mobile rang at 1350 EST. After I said hello, the caller asked “What year is it?” I briefly paused to think, was there a daylight savings year, is this question a joke, does the caller not really know, finally I answered “2007.”

“Correct” was the response. The caller then proceeded to focus on the subject of the call. “Why has it taken seven years for the SEC to take action against Nortel (NT)?” After a few minutes of discussion, I asked if I had to read the 59 page compliant issued by the SEC Monday morning. The caller responded in the affirmative. The reason I did not want to read the compliant when I read the news reports, is I am tired of the Nortel saga. After seven years, I do not have the patience to write about it, the patience to discussion it or the willingness to research it. When I ended the call, I reluctantly set the printer to work on the 59 pages (.pdf). Here is what I think after reading the compliant and apparently I found the time to write about it:

On October 1, 1906, H.M.S. Dreadnaught slipped into the English Channel, one year and one day from the laying of her keel. Over the next few days, she conducted high-speed runs in excess of 21 knots displaying the power of her steam turbine engines, a first for a warship of her size (18,000 tons). Her ten 12-inch guns could engage targets at 10,000 yards. She was fast enough to outrun any ship her size and she was powerful enough to outgun any other ship of her class. Jane’s declared she was the equivalent of two or three of battleships of the designs that had preceded her. Dreadnaught was a lethal and brilliant combination of striking power, speed, reliability and armor that could choose to fight when, where and who she desired. In 1907 Dreadnaught became the flagship of English Home Fleet and assumed the responsibility of the guardian of Pax Britannia at the very zenith of the Empire and only six years after the death of Queen Victoria.

When details of her design became public, it was apparent that this single ship hailed as a triumph by her designers, was in fact a colossal blunder in the eyes of many. It took time for the full impact of Dreadnaught to be realized. Her combination of speed and striking power turned every ship in every navy, in every port of the world obsolete in 31 months. Critics called Dreadnaught:

Private Emailer: “Anyone who lived through the optical meltdown ought to be skeptical about this supposed “tsunami” of video traffic, but it seems that few people are.”

WRK: I agree completely. If service providers provide data on the traffic flows and how it is impacting their infrastructure then I will believe video is causing something to happen. On March 6, 2000 Bernie Ebbers, then Worldcom CEO, stated at the New Economy Summit at Boston College that Worldcom was adding capacity of 800 percent annually to keep up with growth of the internet and that Worldcom’s CAPEX spending would exceed $100 billion a year by 2003. How did that work out?

Over the weekend, I received Q4 2006 Wireless Market Trends Report from Chetan Sharma. Here is a link to the report. The objective of this post is not to repeat the content of the November post, but rather to see if there is any support of the thesis I proposed three months ago. As a side note, it appears Clearwire (CLWR) is marching towards pricing their IPO this week and Alltel (AT) is looking to further accelerate consolidation in the service provider industry.

Does anyone else find the dichotomy interesting? An emerging wireless broadband service provider (i.e. Clearwire) using a pre-WiMAX standard technology is going public and a very successful wireline/wireless service provider (i.e. Alltel) wants to sell out? Alltel is the fifth largest wireless provider in terms of subscribers, covers a generally rural geographic area and has a market capitalization of $21B. Clearwire has less then 200,000 subs, is undercapitalized (hence the IPO) and has a technology solution seeking a market.

My post on Level 3 generated a significant response from the investor and telecom communities. A number of people who contacted me were bullish on the future of Level 3. One shareholder allowed me to reprint a portion of their investment rational anonymously. Here is a condensed version of their investment rational:

“CroweBonics is Silicon Economics applied to our communications business. It’s a fun reference to the phenomenon which Crowe has opined so often. It’s nothing more unless we get into the more complex Mini Max Model. I have never used their model due to the simplicity of my mindset when looking to apply investment thesis-when the company started, and some believe, will factually kick in with the tsunami of video traffic hitting all “networks.” It’s the price elasticity of demand concept. We are comfortable with 3:1 ratios where bit demand is growing three times price compression. If demand is growing at 75 percent and prices are dropping at 25 percent; we have a 32 percent GROWTH rate. The hangover in telecom killed the formula, as you know. Even traffic growth doubling each year would be revenue neutral to the top line while fifty percent year over year price degradation might occur. At last check, IP & Data traffic was growing at 40 percent according to my research. I believe we have begun and are heading into the HYPER GROWTH portion of the S curve...So William, we have a “healthy business” it appears again (CroweBonics), and a best of breed management team!”

If you think I am being sarcastic about the last search string, see the image below. I captured this image of a visitor to my blog on Feb 8. The person was located at what appears to be the Starbucks Coffee Company headquarters and had Googled the terms “get rich from Infinera IPO.”

Level 3 Communications Inc. (Nasdaq: LVLT) says its vast fiber network will help turn its newly acquired content delivery network [CDN] business into something that can compete with Akamai Technologies Inc. (Nasdaq: AKAM) and Limelight Networks LLC .

Frequent readers know that I have posted several times on the subject of Akamai and content. My purpose is not to rain on the Level(3) (note I will use L3 in place of Level(3)) CDN parade, but I fail to see to the comparison between how Akamai delivers content and how L3 delivers content. The Akamai strategy uses distributed hosting servers and content caching. The supposition by L3 that their fiber backbone will be a competitive advantage to a CDN is very much in question. The assets that L3 bought from Savvis were the combined Digtal Island and Sandpiper content delivery networks.

On the week of March 5, a service provider called Clearwire (CLWR) is going public on the NASDAQ with the assistance of Morgan Stanley, Merrill Lynch, J.P. Morgan Securities, Bear Sterns, and Wachovia Capital Markets. The excitement of the Clearwire IPO has less to do with their technology and the business accomplishments to date, rather more to do with who founded the company. The excitement around the Clearwire IPO has more to do with the founder and Chairman of Clearwire: Craig McCaw (pictured).

There is an interesting dichotomy in the social grouping of the people who have interest in Clearwire. In the first group we find the Internet Generation (i.e. born between 1986-1999) and in the second group with find Baby Boomer Generation (i.e. born between 1946-1964). Full disclosure I am a member of Generation X. Many months ago I posted a blog on the generation topic and social networking. You might be wondering what social generations have to do with the Clearwire IPO. Let us start with the first group the Internet Generation. If you have seen a Clearwire sales team in action, you are looking at a group of twenty-something age sales people. If you read the blogs of dedicated internet junkies, you will realize that the internet generation finds Clearwire great, more great, more cool, or they are not all that impressed, or have questions about the company and the WiMAX service offered by Clearwire.