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IN THE LOOP: Supply and demand

Fri, 02/29/2008 - 7:10pm
Thomas G. Robinson, Executive Vice President, CBG Communications Inc.

They say that an army runs on its stomach. In other words, a well-fed fighting machine is going to perform much better than one that is suffering from hunger pains and lack of fuel. In fact, this concept of supply and demand affects all of us in our professional and personal lives every day in nearly every way. Regarding the telecommunications industry, Wall Street watches very carefully to ensure that new initiatives that create demand have the proper supply chains in place, so that as the demand increases the ability to meet the demand is not disrupted. Even little missteps cause Wall Street and investors to go into a tizzy.

Thomas G. Robinson

Take Verizon’s recent play to boost demand for its FiOS system by providing a free HDTV to new subscribers taking higher tiers of service. Prior to stimulating all of this demand, though, it had underestimated the resulting interest of consumers, and therefore ended up having a higher demand for HDTV set-tops than it had anticipated (ironically, though, it appears that it had enough HDTV televisions available). Naturally, Wall Street jumped on this immediately and wondered if there would be a consumer backlash that would slow Verizon’s growth and keep it from meeting its subscriber forecast. Verizon countered by indicating that consumers were quite happy to get the new FiOS service and would wait patiently for the appropriate HDTV set-top. The jury is still out, though, on how patiently and how long these consumers will wait.

Looking at Verizon’s miscalculation, you have to wonder what then might occur related to the traditional cable industry’s DOCSIS 3.0 play to compete with fully fiber-based FTTP (fiber-to-the-premise) systems’ ability to deliver very high-speed Internet services. When DOCSIS 3.0 finally begins to roll out, and if it picks up consumer steam, as Comcast and other operators hope, will there be the proper supply of DOCSIS 3.0 cable modem/routers to meet consumer demand?

Comcast is already in a “war of the words” with FTTP providers concerning the nature of the fiber optic underpinnings of its systems, noting that it has an advanced fiber optic system (how advanced, though, depends upon how close the neighborhood node is to the home) to compete with Verizon’s system that takes fiber all the way to the home. If DOCSIS 3.0 is to add a new and attractive element to the fight, take back subscribers and gather new ones, but be more than just word play, it will need to both stimulate and then meet the demand. Just in time (JIT) delivery to streamline inventories is fine, as long as it actually is “in-time.” To paraphrase a line that has gone down in modern lore, “If JIT isn’t legit, Wall Street will have a fit.”

On another front, I hesitate to think of the broadcast consumer angst when a little less than a year from now, people may be searching high and low for digital to analog converters for all those millions of otherwise non-functioning analog televisions. Of course, those in the multichannel video provider industry have already indicated that they will be happy to jump in and continue to provide an analog signal to all those televisions (and VCRs too). This may seem old school, but in the world of supply and demand there will be significant consumer demand for analog, and the supply of analog signals has been functioning well for a long, long time.

And how about cellular voice and broadband services? Blackberrys have become incredibly popular (yes, I too am now a “Crackberry” user, but I like to say that I have learned to use it responsibly, unlike my addicted colleagues), but were almost derailed through patent infringement suits. If the demand for the service had not been so popular, would there have been such ardent attempts to leverage the supply? Most likely not.

And what of mobile WIMAX? I was hoping to use a mobile WiMAX-enabled laptop by now, but the network rollout has slowed, not because of the demand for the technology which seems to be tremendously pent up, but rather, the economics of developing a cost-effective supply chain. Moreover, any interruption in the supply chain can have a domino effect. Consistent with this, the manufacture of mobile WiMAX enabled devices has now also slowed. Well, there is always 802.11n for now, which is taking advantage of the need for speed and the ability to supply it while mobile WiMAX languishes.

The bottom line is that the supply chain is never perfect. Just ask Boeing. The Dreamliner has been a nightmare so far on the supply side, in part exacerbated by the large demand for the plane and the faster than probably realistic development timeframe that was shaped by heavy competition from Airbus and Wall Street’s low tolerance for delay and miscalculation. These types of supply/demand pressures have been the same for literally ages since market economies were first put into place, but the amount of pressure and the complexities seem to be continually escalating.

Speaking of supply and demand, if you’re in the market for a high-definition DVD player, HD-DVD units appear to be overstocked at the moment. But hurry, they won’t last long (literally!).

robinson@cbgcommunications.com

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