Investing in a new commodity: bandwidth
Frank Hemsley - Wed 05 Jul, 2006
..."Until recently," Andrew pointed out in an email discussion this morning, "few investors even realised bandwidth is a traded commodity. Little do they know, it is about to become one of the world’s most important commodities. "Think about it. The entire globe is quickly turning to Internet Protocol (IP) for all of its communications needs. The World Wide Web was literally just the beginning"...
The commodity called "bandwidth", is quickly taking the investment world by storm.
"Until recently," Andrew pointed out in an email discussion this morning, "few investors even realised bandwidth is a traded commodity. Little do they know, it is about to become one of the world’s most important commodities.
"Think about it. The entire globe is quickly turning to Internet Protocol (IP) for all of its communications needs. The World Wide Web was literally just the beginning.
"Now, phone companies are using IP. Television stations are using it. Mobile phones will soon be switching to it. Car makers will be using it. Even Major League Baseball recently connected all of its stadiums using IP – and that could soon be the same in all major sports."
Investing in a new commodity bandwidth: The coming demand surge in bandwidth
Andrew makes a very good point. If you’re not familiar with IP, you should be. It’s quickly becoming the world’s communications standard. Soon, any device will be able to talk with another device using IP technology. To do it, lots and lots of bandwidth will be needed.
In the simplest terms, IP is the method in which data is transmitted over a network of computers and servers. It is the technology that allows any computer to talk to another computer over the Internet.
But, as we will soon see, it stretches far beyond today’s uses. As VoIP phones, Internet-based television, Wi-Fi, and dozens of other uses for IP become the global standard, the technology will be critical on all corners of the globe. One very important piece of the puzzle will be bandwidth.
Bandwidth is a very confusing topic. Few investors fully understand what it is. In reality, it is not a hard concept to understand at all, as Andrew explains:
"Picture a tap. If you open the spigot, you have a virtually unlimited supply of water at your fingertips. It is the same way with bandwidth. If you were given unfettered access to the global network, you would have unlimited amounts of bandwidth at your fingertips.
"Unfortunately, the companies that provide a connection to the IP network don’t want users to have an unlimited supply of bandwidth. If they did, the network would quickly clog up with huge amounts of traffic.
"To avoid this, users must purchase a limited supply of bandwidth. The allotted supply is measured by the amount of data transferred across the network in a certain time period.
"It is the same measurement technique your water company uses to bill you for your water usage each month. The only difference - and it is a very important one - is bandwidth users typically have a set limit of bandwidth to use.
"If they use it all before the allotted time period, their connection is shut off. If they don’t use it all, they wasted their money. That is where the money is going to be made.
Investing in a new commodity: bandwidth: Searching for the companies to
play this new commodity bull
"Companies are quickly realizing bandwidth must be treated like a commodity. After all, there is only so much of it to go around."
You may be able to see where all this is leading. Perhaps it strikes you as it struck Andrew and myself in our email exchange...there must me profit opportunities here.
Just as there have been...and will continue to be...massive opportunities to make money as gold resumes its up trend after the recent substantial correction, so too there MUST be ways to cash in on the scramble for bandwidth.
The way we see it, if a company runs out of bandwidth, it could suddenly find itself in big trouble. Its connection to the world could be instantly cut off. Its only option is to buy excess bandwidth from somebody else. And that is where a bandwidth exchange comes in.
These are the companies that broker the deal between bandwidth users and suppliers. With the world’s bandwidth demand once again meeting supply, bandwidth exchanges are becoming extremely profitable.
This could be huge for investors. It could be the equivalent of getting in on the next big commodity at the absolute ground floor. We just need to find the right way to play it.
During the great "Tech Boom" of the end of the nineties, dozens of bandwidth exchanges popped up. The only problem was, there wasn’t enough bandwidth demand. The losers quickly went out of business. Get the right stock this time around, and you could make a fortune.
This next-generation commodity is going to be absolutely huge. The search is on for the stocks to own to play this opportunity. Stay tuned...
Warm regards,
Frank Hemsley
for The Daily Reckoning
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