With the heavy demand for triple-play services and IPTV (Internet Protocol Television), DSL subscriptions are increasing exponentially. The total DSL market is currently around 193 million subscribers, and is estimated to become as large as 353 million by 2011. IPTV subscribers will increase to 63.6 million from 14.3 million now also by 2011.

If you factor in the rate of Internet penetration growth in China and India alone, those numbers could more than double. China’s online population has increased 486% since 2000, but it still only has 12.3% of its population online. India is even more astounding. With growth of 700% in the past seven years, only 3.7% of the population has Internet access. Even if those penetration rates only go to 50% (the U.S. has a 70% rate) and just half of those people choose DSL, that’s 612 million DSL users in these two Asian countries alone.

Why DSL?

Well, compared to high-speed cable, a DSL connection is not shared. Cable connections are shared between other people in your area. For instance, if you have a high-speed cable connection in an area, where only a few people also have cable connections, then your connection speed should be consistently fast. But if you are in an area that has many others connecting to the same provider, you have to share the connection speed with everyone else, which will drastically reduce how fast your YouTube video loads.

DSL is different. There is no shared connection. Say for instance you live in a large apartment complex, where many of your neighbors have DSL. If you also got DSL, it wouldn’t matter how many people are downloading movies or just surfing the Web. Your connection would be the same as if you lived completely by yourself in, say, Siberia (as long as DSL is offered in your Siberian wasteland).

This point becomes even more crucial when you factor in the millions upon millions of Chinese soon to be piling into skyscrapers that are being erected at an unfathomable rate. For many of these people, Internet access will be a brand new luxury. They will certainly want the fastest possible connection. High-speed cable cannot compete with a non-shared DSL connection. But, how do you invest in such a growing market?

If you want to see real profits, you can’t throw your money at Ma Bell or other obvious DSL plays…

Just investing in DSL providers is not the way to go. The Verizons and Bell Souths of the world just aren’t pure DSL plays. Too much of their businesses rely on all kinds of other projects that we don’t want clogging our profits. Semiconductor makers that produced the circuits used in DSL technology are duds, too. The semiconductor industry is competitive, and manufacturing keeps profits low. There’s a better investment here…

There is one company that has its hands on all of the right innovations and technologies associated with DSL systems without the profit-killing effect of actually manufacturing it…

This company has been involved in the DSL revolution from the start. It was formed in 1986, and since 1993, it has been a leading DSL integrator. It holds key intellectual properties in this field, many of which are for next-generation DSL technologies.

In 1993, this company became one of the first to discover the potential in Asymmetric Digital Subscriber Lines (ADSL). ADSL is now the industry standard form of DSL. The way it works is through three segments of copper wires. One segment is for plain old telephone services (POTS). The second is for upstream data (data going from the user to the service provider). And the last is for downstream data (data the user is pulling from the Internet).

But ADSL won’t be around forever. The best and future form of DSL is called VDSL2. This version doesn’t use three separate segments of copper lines. It uses regular POTS, but does it more efficiently. Instead of switching out all of the old POTS lines and lower speed DSL lines, this is just an upgrade that enables users to have HDTV, interactive gaming, voice, video and data. It enables the fastest data transfer of any form of DSL, all through a normal telephone line.

As the DSL revolution continues, we’ll be tracking the best investments in the small-cap universe. Until next time…

Sincerely,
Jim Nelson
October 17, 2007

P.S.: The DSL technology innovator mentioned above currently holds key intellectual property associated with this VDSL2 revolution that’s up and coming. To find out how this company plans to bring shareholders big profits, you can sign up for Greg “Gunner” Guenthner’s powerful penny stock newsletter, Penny Stock Fortunes.

Emerging DSL Technology was originally featured in the Penny Sleuth.