Tuesday, May 17, 2005

Net Calling Drives Nortel, Drops Net2Phone - Forbes.com

Nortel moved up and Net2Phone moved down. Vonage raised $200 million in fresh capital last month. Skype is growing by leaps and bounds.

VoIP is shaping up as the classical great non-profit growth story. Consumers are the winners. Consumers can cut their phone costs to zero (if they do not consider the cost of high speed internet access).

Nortel and other equipment makers may make money as the growth story unfolds. Another way of looking at this is like the 1849 gold rush. Most of the prospectors did not strike it rich but the guys who sold the shovels did very well. Google and others may be able to monetize the free Skype type calls.

In The Future for Investors Professor Jeremy Siegel relates several stories in regard to the telecom bubble. He relates that in 2000 it cost 1.6 million dollars to lease a telecom line that could send 150 megabytes per second between New York and L.A. Two years later the line leased for $150,000. I noticed yesterday that LVLT is down to about $1 per share. Global Crossings, World Com and others are bankrupted. These and other companies laid 750 Billion Dollars worth of cable. The first principle of economics is that goods have scarcity value. Excess capacity is always a serious problem.

Consumers will soon routinely send video over these lines. Nortel, LU, and others will eventually grow their businesses again. Investors should not expect to see Lucent or Nortel back at $100 per share but a 300% gain over the next five to eight years to $6 or so per share might be in the cards.