What is broadband?
As a 21st-century techno-consumer, I want the ability to create, access-on-demand and communicate 'rich media'. That means video, audio, photos - all the megabit-heavy stuff that, with a normal 56K home connection, takes a day to download off the internet today. I want to do that in my house or office and when I'm moving around. And I want it all seamless, synchronized and 'always on', no matter where I am or what access device I'm using (TV, PC, phone, PDA, audio system).
That requires much greater communications capacity and speed, or bandwidth: over old BT copper wires using DSL compression, over fibre-optic cable, via enhanced satellite networks or third-generation mobile phone networks.
Some households have early versions of the DSL and cable options, although penetration is low.
The telecoms industry is now preoccupied with the global build-out of this network, in the most concentrated infrastructure investment since interstate highways and autobahns in the 1950s.
Who are the key industry players?
Vendors of network hardware and software - from switches and routers through optical fibre to networking software. Market cap giants here include Cisco, Nortel, Corning, Alcatel, Ericsson and Fujitsu. And there are some upstart newcomers with impressive values: Juniper (dollars 50 billion value on dollars 400 million revenue), Redback (dollars 15 billion on dollars 200 million).
Secondly, operators of fixed-line or cable, mobile and satellite networks: AT&T, BT, Sprint, MCI-WorldCom, France Telecom/Orange, Vodafone, Murdoch.
Most compete in last-mile connectivity to the end consumer. Some, like MCI WorldCom, focus on the internet backbone: large pipes connecting major traffic hubs like London and New York.
Major media content players are merging with this last group. AOL-Time Warner combines Time Warner's global content assets (film, TV, music, print), plus its leading market share in US cable networks, with AOL's ISP-plus-portal subscriber base of 20 million consumers. As an anti-US counterpunch, the merger of France's Vivendi and Canada's Seagram combines the Universal film and music assets, Canal Plus pay-TV, SFR's French mobile network, and Vizzavi, a portal joint venture with Vodafone.
Another important group is the firms that make the devices (and the device software) that will connect consumers to the broadband feeding frenzy - PC-DVD-TVs and distributed home entertainment systems, or multi-purpose portables.
Who has the biggest profit growth opportunity?
The best sector bet has to be the hardware and software infrastructure vendors. The technology is difficult and changing rapidly, and there are real economies of scale. Demand growth over the next five to 10 years will be tremendous (although we may be in for a nasty cyclical downturn in 2001). The network operator customers want to deal with strong, top-end global suppliers, and they have the cash to pay their bills. Net result: strong competitors should make good money.
The device-makers could also be in for some good times - judging by my renewed levels of personal lust for consumer electronics, as described in ghastly detail last month.
Who might have problems extracting good returns from broadband?
Backbone operators like MCI WorldCom are operating in a commodity market, where it is easy for business customers to switch quickly on the basis of today's marginal price - and capacity looks like exceeding demand by a wide margin, for a long time.
Last-mile operators should have better prospects. They can own their consumer customer relationships, differentiate themselves with services and support, and enjoy protection from new competitors. But... will they have invested too much in 3G licences, and in 3G (or cable) build-out, too fast? Will pricing be driven down to the low-margin levels of US long-distance, or below - with modest fixed monthly charges, based on local-rate internet access, covering all communications, even including high value-added killer apps like videophone and voice interaction?
The AOL-Time Warner and Vivendi-Seagram combinations face these problems and more. How will content owners extract payment in an open, post-Napster, multi-media internet distribution environment? What's the value of vertical integration, which is always difficult to manage, if you're forced to make content available to other networks at reasonable cost?
So what bets are you making on broadband?
I'm betting it will be a great decade for the consumer. Now you must excuse me, I'm off to copy some free Radiohead onto my hard drive (just joking)