Monday, October 31, 2005

Om Malik’s Broadband Blog — » Are Bandwidth Mergers Enough?

Om Malik’s Broadband Blog — » Are Bandwidth Mergers Enough?

Om Malik is one of my favorite bloggers. He covers Google and other broad band companies nicely. The link below is to his most recent article about LVLT. He makes it sound as if companies like Comcast and Google will build their own fiber networks even when a company like LVLT is sitting on the nest egg. I suspect that LVLT will be taken over at some point. Everything Om relates shows that the demand is growing rapidly.

Tonight, NBC announced that its nightly news will be available on demand over the internet anytime after 10 pm. I would have liked for the announcement to have been that it will be available starting at 7 but this is the first of many such announcements. Being able to search old news programs will extend their usage and value.

Sending a 30 minute newscast over the internet is on the order of sending 500 thousand emails. SBC did not buy AT&T and VZ did not buy MCI for the long distance business (a dying business). These companies were bought to secure the networks. I do not own LVLT as I am concentrated in 8 stocks. However, if I were not willing to put so many eggs in one basket, LVLT would be in my basket.

To me, this is a story of the survivor living to thrive. There is such a small difference between the last of the bankrupted firms in a down-turn and the one that made it. CAL and NWAC are great examples. The two firms were not so different before NWAC went belly up. Now there is a world of difference. My family lost money on NWAC but has already made up the loss on CAL, with a lot more room to go.

LVLT by taking over the Williams network, LVLT has out lived the patience of a well to do company. Williams as I recall is a profitable oil pipeline company that built a fiber network along its right of ways. I remember that CSX railroad and others tried to take advantage of their right of ways. It is like the consolidation in cell phones, where too many players could not make money but the survivors did well.

LVLT and WilTel together can cut cost and increase revenue with no capital costs. When LVLT catches some traffic it will be able to hold it for longer distances and the same when WilTel catches traffic. The bargaining position is strengthened. Comcast, QCOM, Google, AOL or others may come to call.

There is much overlap in the two networks. The reason it makes so much sense for LVLTto acquire is that the takeover cost of one carrier was in competition with the other. LVLT may have paid up a little but now it is in the position of being the only provider available in these markets.

No one seems to have the maps of the QCOM, Google, Comcast or other networks. I am sure each firm is guarding the maps well. Of course, MCI and AT&T were bought because of the size and capacity of their networks. Google understands that Moore's law works in regard to traffic costs in addition to storage costs and computing cost. Google is flying ahead as if the costs will be virtually nil in a few years.

Traffic growth is going to be huge, traffic costs is going to be very small relative to advertising revenues. The jury is still out on the question of will there continue to be monthly usage fees (would you enjoy not getting a phone or internet bill?).