Found this on another board great read.
Lehman: IPTV could drive 10% annual capex growth
By Ed Gubbins
Mar 27, 2006 1:17 PM
Optimize Your Network. Maximize Your Profitability.
Learn more about flexible architecture that can handle increased broadband traffic, and discover ROADM options that can reduce OPEX. Download these two FREE White Papers.
Sponsored by Meriton Networks
Research analysts at investment bank Lehman Brothers urged investors to buy more telecom equipment stocks now to take advantage of video deployment trends that will feed growth for at least the next few years.
The sell-side analyst group raised its long-term outlook for the telecom equipment sector from “neutral” to “positive,” a rating that signifies improving fundamentals and valuations.
Much of the reason for the shift came from what Lehman analyst Jiong Shao called the “unwavering commitment” to IPTV he and his colleagues perceived among telecom carriers at two recent industry trade shows, the Voice on the Net (or VON) show and last week’s TelecomNext.
Unlike a year ago, IPTV technology is “almost there,” Shao said, referring to the attempt to overcome technical problems in the nascent technology. And as more carriers deploy Gigabit passive optical networks (GPON), the technology will grow more robust.
What’s more, IPTV deployment is a global, not merely domestic, phenomenon that will significantly impact multiple industries, including content and advertising, Shao added. For example, PCCW in Hong Kong has 400,000 IPTV subscribers; FastWeb in Italy has 150,000.
“Every major carrier in the world is going to do IPTV in the next couple years,” he said.
It’s far too early to fully grasp all the implications of this trend for global carrier capital spending, Shao said. But he believes worldwide carrier wireline capex could potentially grow 10% per year for the next two or three years. (Lehman has previously predicted a 5% increase in global wireline capex.)
In addition to that, if carriers are successful in winning IPTV subscribers, they could increase their spending on IPTV to perhaps 20% or 30% of their total capex budget, he said. AT&T and Verizon Communications are currently spending about 15% to 20% each.
In general, carriers interested in deploying IPTV need to commit at least 10% to 15% of their total capex budgets to it, Lehman estimated.
Today carriers are buying access equipment to deploy video. But over time, the increased bandwidth will require network overhauls upstream in metro and long-haul networks, benefiting the highly competitive optical equipment sector, Shao said. For example, he considered Cisco Systems, with its CRS-1 core router, a likely candidate to help AT&T fulfill a planned upgrade of its backbone network to 40 Gb/s this year.
However, the revenue opportunity for vendors will be very lumpy, often swinging significantly from one quarter to the next, and even year to year.
Still, despite current uncertainties surrounding the IPTV space, from regulatory fights over video franchises and concerns surrounding network neutrality, Lehman believes the age of IPTV is inevitable and just beginning.
“We’re convinced investors should look to increase their exposure to this sector,” he said.
