Internet Video: Credit Suisse Perspective

Internet video has revolutionized TV viewing, and also considerably slowed down the Internet. The proliferation of Internet video is likely to drive demand for bandwidth. Compared to email, documents and mp3 files, a simple video file requires more bandwidth to transmit. As total Internet bandwidth demand continues to grow, industry pricing dynamics and profitability should improve. Level 3 and Equinix are emerging as the leading telecom services providers. Increasing Internet usage per subscriber in a more stable wholesale bandwidth pricing environment presents challenges for cable operators. Specifically, cable faces potential margin pressure/higher capex from increasing backbone costs, in addition to increasing capex requirements in the local loop. As bandwidth consumption grows, peripheral infrastructure will prove insufficient, driving an upgrade cycle in PCs, storage, graphics, displays, MPU power, etc. Although video is perceived to be only a consumer application, the more powerful benefit of video could be in the office environment – vis-à-vis next generation teleconferencing, which is likely to be the next productivity cycle in corporate America. Tech equipment companies like Ciena and Cisco seem well positioned to take advantage from increased network spending. Investments in optical equipment will likely be required to upgrade and build the capacity required to carry the impending wave of video traffic.
Thanks to Credit Suisse Research, February 2007.