Is the World Ready for Broadband? Israel Isn't

It's a great idea, especially aDSL. Just tell it to the comsumers.
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Prophecies that the world would end notwithstanding, 2000 was supposed to be the Year of Broadband. The profit warning from Netro (NTRO) , released yesterday, was the final proof that it wasn't.

Until mid-2000, the world media were busy explaining why access solutions providers opening the bottleneck of communications by bringing broadband to the home were so hot, however they did it.

Popular methods to bring broadband or fast Internet to the home are digital subscriber line and cable. Digital modems increase the bandwidth capacity of regular phone company copper wires. Cable television networks have broadband capacity to begin with, but need upgrading to become bidirectional. Cable Internet users need modems that handle data and wireless, too.

Now it seems that however users do it, revenues are slow to arrive as images with a five-year-old modem. Stocks of broadband communication companies collapsed.

Netro yesterday joined the crew that can't meet revenue forecasts.

Vyyo

(VYYO)

cautioned it will be at the lower end of expectations, too. But the market wasn't sitting around waiting for their warnings.

Netro pinned its failure to meet forecasts for the coming couple of years on

Lucent

(LU)

. In fact, almost every company in the communication sector today pins its failure on Lucent. But it is clear that the real problem, Lucent included, is the market.

At its peak, Netro traded at a market cap of $7 billion. A few months ago, investors realized that was an absurd valuation for a company losing money, facing cut-throat competition and selling barely $100 million a year.

Vyyo,

Floware Wireless Systems

(FLRE)

,

BreezeCom

(BRZE)

and even

Ceragon Networks

(CRNT) - Get Report

, which is not directly involved in wireless access, have all taken a beating.

In the data-over-cable modems market,

Terayon Communication Systems

(TERN)

this week announced that its sales would be 50% lower than forecast for the next two years. It was soon joined by

Harmonic

(HLIT) - Get Report

, which again released a profit warning based on the sector's weakness.

Cable companies may be upgrading their infrastructure and the dip may be temporary, but in practice companies that sell to them find it hard to generate growth and profit.

DSL was thought to offer the greatest promise. Today the sector is crying. Nobody can gloat about financial results from aDSL, the asymmetrical systems intended to provide fast Internet to homes over copper wire, which were supposed to fuel the great leap forward in 2000.

Orckit Communications

(ORCT)

, which was once worth $2 billion, is currently worth $80 million. It's looking like a likely candidate for collapse next year, after officially giving up on the aDSL market.

ECI Telecom

(ECIL)

, which built castles in the air based on broadband, has also discovered that it promises much and delivers little. In the last quarter ECI released a profit warning, due among other things to greater-than-expected aDSL losses. The company maintains that its aDSL activity is worth a lot of money, but in practice, Wall Street probably isn't willing to pay much for its merchandise.

Israeli aDSL companies are but a local example of the global meltdown, which hammered providers like

Covad

(COVD)

, chipmakers such as

GlobeSpan

(GSPN)

and

Varta

, and systems companies like

Copper Mountain

(CMTN)

. down.

The reason for the implosion of the sector isn't that estimates about required bandwidth or the access bottleneck were wrong.

It's that end users are taking forever to sort out their options and decide what they want. Inundated by analyses and forecasts from telcos, they don't know how to choose, but just as important -- they aren't really willing to pull out the old wallet and pay up.

The slow acceptance of aDSL in Israel is a good example consumers' just not being ready for bandwidth, not knowing why they need it and not being prepared to shell out $100 a month for it.

TheMarker is a leading source for technology and business news information in Israel. The site is a venture backed by the Israeli daily Ha'aretz and TheStreet.com. For more stories, go to

http://www.themarker.com/eng.