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Thursday, August 17, 2006

Rumor Of Bigger Pipes

Stocks: (VZ)(CMCSA)

The Wall Street Journal's lead article online covers the potential need of cable companies to upgrade their systems to compete with the new fiber-to-the-home initiatives of phone companies like Sprint. The report comes from industry think-tank Cable Labs. The reports was described as "speculative".

Speculative is not a strong enough word. Cable systems now already effectively carry cable TV, voice and broadband at a rate of 10x to 50x DSL. While fiber-to-the-home will set up pipes that are fatter that those provided by cable, the question is how big do the pipe have to be. The lines that Verizon is putting down using fiber are almost too big. The consumer does not need that much capacity.

It is easy to see why Verizon and other telcos need to upgrade from DSL to fiber. Their current systems cannot handle content like video when its is viewed a high speeds in the home. But, cable has no such problem.

Verizon is making a gamble. The cable companies like Comcast do not have to. The Verizon system has to be fast enough to offer broadband, including IPTV, to compete with cable programming and VoIP/broadband systems. Cable Labs has the analysis backwards. The telcos must upgrade to save their markets. Cable is already there.

Douglas A. McIntyre can be reached at He does not own stock in companies that he writes about.

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