DSL Prime News Briefs

It's January, and that means that lobbyists return to D.C. after a brief vacation, hobnobbing with the new Congress. Also slated for the New Year: lawsuits and takeovers.

by Dave Burstein of DSL Prime and Future of TV [January 4, 2007]

E-mail

• "I am stunned by AT&T CFO Rick Lindner's comment 'Special Access rates have been declining as a result of competition.' What was the evidence Lindner cited?" The comment came from someone, probably an advocate on the issue of how much to charge the competition (like T-Mobile and Sprint) for all important data lines. Actually, Lindner presented no evidence to back up his comment, but I included it to make clear that a freeze on these rates is an easy thing for AT&T to accept in the D.C. negotiations. After all, if the rates are going down anyway, it's not much of a concession to agree not to raise them. That's typical of almost everything in the proposal, very little that changes things. Getting BellSouth territory to 85 percent DSL sounds good—unless you know BellSouth is already at 85 percent.

Briefs

• It's become a cliché that "half of Internet traffic is Bit Torrent" based on unverifiable press releases from several sources. It almost certainly is untrue. The latest data from MIC Japan, for example, show that WinMX and Winny are far ahead in the third largest Internet market in the world, with over twice the volume of all other p2p protocols combined. In France, Daily Motion is a surprising share of the traffic. Japan's official MIC also reports "It is p2p traffic that has a significant effect on networks rather than streaming and web surfing." This is almost certainly true in the U.S. as well, meaning anyone in D.C. who claims streaming video (YouTube, Google, etc.) is a major traffic burden is probably lying.
  
  
• D.C.: 10 April is the new date for the Bar Association "Chairman's Dinner." Last December, over 1,000 lobbyists filled the Hilton where Reagan was shot, but the event is delayed until April this time. It's remarkable to see $300 to $400 million in billing together in a big room. Add Congressional lobbyists, the folks who could not come that night, Astroturf and other consultants, the meaningless policy "ads", the "campaign contributions" and it's easy to count over a billion dollars in influence-peddling. Most of that is aimed at four men and one woman, the FCC commissioners who are bored and sick of most of it. Ask any of them privately, and you'll discover they'd rather listen to an honest outsider who knows the relevant facts.
  
  
• Ofer Vilenski's Jungo provides the software to millions of residential gateways around the world. They seek to standardize the worldwide "operating system" of gateways in a way similar to how Microsoft provides most of the worldwide PC operating systems, and scored some significant customer wins along the way. They've now been purchased by NDS for $107.5 million in cash. The Rupert Murdoch controlled company's software is in most of the world's satellite boxes and has shipped almost 5 million DVRs as well. BSkyB owns DSL provider Easynet and is offering not-quite-free broadband, a natural market for an extraordinary gateway/set top from the new merger. Vilenski adds, "When our gateway software 'speaks' to the set top, we can store video files on the gateway. You can then watch on any device in the home, or send the program to your cell phone or connected laptop." DSL Prime has often reported the lack of upgradeability in most set tops is a severe problem.

Press

• Anick Jesdanun at AP picked up the "(A)DSL is so twentieth century" theme with a strong piece on how users want faster uploads. He went beyond the "usual sources" to respected technologists John Chapman (playing a major role in DOCSIS), John Cioffi (DSL engineer and Marconi prize winner), and Gary Bachula of Internet2. Mark Harrad of Time Warner Cable needs to read BroadbandReports.com, "Speed has not been an issue for most of our customers, or we'd hear about them." TWC customers are constantly demanding more upstream, and his engineers are fighting congestion in the limited upstream they have.
  
  
• Not telecom, but good reporting I'd like to acknowledge. I'll leave the value judgments to the reader, but like the blunt statements. Amidst a barrage of spin about the Ethiopia-Somalia War, the Washington Post is clear, "The State Department signaled U.S. support for the Ethiopian military intervention in Somalia." The New York Times writes, "American officials have given Ethiopia, one of their closest allies in Africa, tacit approval to stamp out the Islamists."

Wall Street

• Ikanos faces 11 firms competing to be the lead plaintiff in the shareholder suit, with both Lerach Coughlin and Milberg Weiss fighting hard. In discovery and other research, they will almost certainly find the problems that surfaced late in the year foreshadowed. Some were clearly revealed in financial filings, but any problems not publicly disclosed will have repercussions. If the case turns on mens rea, however, I'd like to offer my opinion that CEO Rajesh Vashist had no intention to defraud. His accomplishments at Ikanos have been remarkable, beating to market half a dozen companies with far greater resources. I'm sure he many times confronted what looked like dismal situations, but overcame the problems and delivered successful products reasonably timely. I'd guess that gave him confidence that allowed him in good faith to believe he could overcome severe obstacles in 2006 as well. Every winning streak ends, of course, but that moment is hard to foresee after earlier successes.
  
  
• China Mobile rose $10 billion on December 26, reaching a market cap of $170 billion. Vodafone is not far behind, at about $160 billion market cap. Yes—the money is in mobile, and not in the United States.
  
  
• Adtran announced Q4 sales should be $108 million to $112 million , down dramatically from $140 million last year and $149 million the previous quarter. The shortfall was probably due to one or more bells slowing deployments of DSLAMs as part of a capital spending slowdown.
  
  
• I want to repeat my warning that what I cover is different from what moves the market. That was brought home reviewing my 27 September comment "the inappropriate $20 billion gap between AT&T and Verizon market cap should narrow soon." In fact, the gap expanded to over $30 billion and now is at $27 billion, far too much on the fundamentals, but Graham and Dodd don't set stock prices.
  
  
• Very sorry to discover "On December 18, 2006, Mr. Hong Lu, president and chief executive officer of UTStarcom, Inc., received a "Wells Notice" from the staff of the U.S. Securities and Exchange Commission (the "Commission") in connection with an ongoing investigation into trading activities by third parties. The Wells notice states that the staff intends to recommend to the Commission that it file a civil injunctive action alleging that Mr. Lu violated Section 10(b) of the Securities Exchange Act of 1934." Hong has been helpful and generous to many of us in the industry, and many wish him well.
  
  
• BigBand has a problem as well, Om discovered. "The investigation, which was completed in December 2006, found numerous instances in which resellers of our product applications in China, with the understanding and approval of our China personnel, agreed to provide technical support, extended warranty terms and potentially other undefined terms without proper documentation and without communicating these arrangements to our legal and finance departments. As a result, we have deferred approximately $4.8 million in revenue from customers in China, which will be recognized in future periods if we satisfy all of the elements of our revenue recognition criteria."
  
  
• There are perpetual problems with telecom sales figures in China, where China Telecom and Netcom pay for goods on their own schedule, often 6 months later than they take delivery. In some cases, the goods are carried by manufacturers as inventory, although they may already be in use at the carriers. Other times this produces very long receivables. I don't believe this is the explanation of the BigBand issue, however.

People

• Claire McCaskill, new Democratic Senator, hired AT&T lobbyist Sean Kennedy as her chief of staff. The only ethical position for them to take is to bend over backwards on issues affecting that company. With luck, the press will be watching.

Copyright 2007 Dave Burstein.
The DSL Prime Newsletter is reprinted with permission.

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