Opportunity still knocks for those who know where to answer - Communications - market for broadband access - Statistical Data Included - Industry Overview

Electronic News, June 3, 2002 by Steve Rago

It was only a few years ago that the IC suppliers to the telecommunications industry promised that they would transform the billion or so copper phone lines and cable television coaxial wires around the globe into solid gold. The magic elixir conjured up by these silicon alchemists was a new line of chips enabling high-speed Internet for the masses, via the broadband technologies of xDSL and cable modems.

A whole new generation of telecommunications and cable service providers fell victim to the alchemists. Under the spell of these techno-wizards, they spent millions to pave the way for broadband. However, like the alchemists of old who claimed to be able to turn lead into gold, these new sorcerers eventually fell into disrepute as the promise of a quick broadband deployment seemed to vanish into thin air.

After the disillusionment, can the alchemists' promises ever come to fruition? Market research firm iSuppli Corp. believes the answer is yes. Consumers are demanding fast broadband Internet access and are pushing service providers to offer it. Despite appearances, the market is growing, and there is gold to be made, if you know where to look.

The market for broadband access was surprisingly strong in 2001. While the rest of the communications industry sunk to the lowest levels in its history, broadband access actually grew robustly. The number of broadband Internet subscribers more than doubled in 2001, rising to 33 million, up from 13 million in 2000. iSuppli projects that the number of broadband subscribers will grow at a robust rate of 36 percent per year. By 2006, iSuppli expects broadband access to have penetrated 46 percent of Internet homes, with a total of 186 million subscribers.

ADSL: The Global Leader

ADSL is the leading technology in the global broadband access market. It is the broadband access method of choice in most countries, with the exception of North America. Consumers overseas, especially those in Germany, are accustomed to receiving their high-speed Internet connections over ISDN telephone lines. These subscribers view DSL as an upgrade to a good stable service, rather than something new and unproven. The telephone infrastructure in many countries, particularly in Europe, also is more suitable for XDSL than it is in North America.

These are major reasons why iSuppli is forecasting that Europe will become the fastest growing region for ADSL deployment. The customer attitude is positive and the infrastructure is adequate.

ADSL is so popular in South Korea that the country now has reached saturation in Internet users and broadband access. With government involvement and drive, and ADSL pricing at $30 per month, South Korea has become the flagship for broadband. What is startling is how quickly the saturation occurred. By the end of 2001, 70 percent of South Korean households were connected to the Internet. Of these connections, 62 percent were made with a broadband device.

However, cable modems have won in North America and will continue to account for two-thirds of all broadband subscribers in the region for the foreseeable future. North American service providers added an average of 1.3 million broadband subscribers per quarter in 2000, and they increased this rate to more than 1.74 million in 2001. iSuppli is forecasting that North American service providers will continue adding subscribers at a 1.7 million quarterly rate in 2002. Part of the reason for the success of cable in North America is a strong infrastructure, which iSuppli expects to become 70 percent to 80 percent two-way and digital-capable by the end of 2002. Of the 99 million households expected to be passed by cable systems in North America in 2002, 74 million will be able to receive quality data services from cable providers.

Future's So Bright...

The future of broadband access looks very good in the long term. Still, questions remain for semiconductor suppliers. Is there sufficient margin for them to turn an adequate profit? Is there really gold in those copper pairs and coax cables? After the industry reached historic production levels of 2000 that made many silicon suppliers the darlings of investors, the resulting oversupply forced many of these same suppliers to adopt survival tactics. While the subscribers continued to grow at record rates, chip suppliers continued to suffer and some, such as Agere, Motorola and Alcatel ME, exited the business.

For those that survived, 2003 and beyond could prove to be very lucrative. iSuppli expects revenues from cable modem and ADSL silicon to grow at a compound rate of 17 percent per year, reaching $2.3 billion in 2006. This doesn't even include the revenues for cable head-end silicon. So, despite some setbacks, iSuppli believes the broadband market could be in store for a belated gold rush.

Steve Rago is a principal analyst for the networking and optical server market at iSuppli Corp. in San Jose.