October 22, 2010 – Now It’s Peak Light


3) Now It's Peak Light. Many of the big telecommunications investments of the last decade were made possible because the cost of long distance transmission was essentially free, thanks to the massive overbuilding that took place during the dotcom boom.

That era may be coming to a close. It has required ten years to take up the slack, but it now appears that we are finally running out of fiber optic capacity. Take a look at the chart below showing an exponential growth of fiber optic demand, while the supply is leveling off. The big driver here has been the explosion of high bandwidth applications, such as online video, gaming, and the profusion of smart phones. That is the conclusion that is coming out of recent telecom industry conferences.

What are the implications for you and me? Count on your phone, cable TV, and broadband bills to go up. Also expect the profit margins of the big carriers, like Comcast (CCS), to shrink. More importantly, this means that there is a great investment opportunity setting up here.

I am always looking for exponential growth in demand to overwhelm linear supply, sending prices rocketing, as we are now seeing across the board in commodities and food. The only thing that could upset the apple cart here is a sudden technological breakthrough that would enable a rapid, cheap growth in capacity, as we saw in the nineties. But there is nothing remotely like that in the immediate pipeline.

I will be looking for companies that are narrow pure plays that capitalize on this trend. If anyone knows of any, please e-mail some ticker symbols to me at madhedgefundtrader@yahoo.com. For now, I just thought you'd like to know that this trend is out there.



About to Become Scarce?