Sector Watch: Bandwidth providers

Not long ago, when you wanted to make a call, you used a cell phone or even a run-of-the-mill telephone. When you wanted to watch TV, you used a television. These days, though, almost all our daily communication and media needs can be met through the Internet.

Because of this trend, the high demand for bandwidth is upon us and continues to expand in response to the rapid deployment of bandwidth-intensive services such as Internet phone, Internet television, online gaming and streaming video.

International Data Corp. forecasts the U.S. subscriber base for Internet phone and Internet television will grow at annual rates of 64% and 131%, respectively, between 2005 and 2009. Online digital game downloads are forecast to increase to 3.3 billion by 2009 from 1.2 billion while overall broadband penetration is projected to grow from 34% to 53% of U.S. households.

Poised to prosper are Switch & Data Facilities Company, Inc. (Nasdaq: SDXC) and RRSAT Global Communications Network Ltd. (Nasdaq: RRST), two companies that provide services that address rising bandwidth demand.
 
Switch & Data Facilities provides network neutral connection and collocation services for telecoms, Internet service providers and online content providers. Initially, the various networks that made up the Internet connected at public network access points. Eventually these became owned and managed by telecoms. As traffic grew, however, these network access points became overloaded and some network service providers began connecting directly by establishing fiber optic links between facilities. These links, expensive to build and maintain, led to the formation of commercial businesses such as Switch & Data, which operates network neutral Internet exchanges and collocation facilities.

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