Abstract

In 2004, Western Europe and China were the main sources of subscriber growth for the global DSL market. The world's leading DSL CPE vendors therefore focused on securing tenders in these two markets. Thomson, Siemens, and ZyXel all benefited from strong growth in the Western European market; Huawei and ZTE secured substantial orders from China Telecom and China Netcom. As a result, all of these vendors were able to maintain a reasonable level of market share. Nevertheless, even the largest players - Thomson and Siemens - have global market share of less than 10%; the level of concentration in the global DSL CPE market remains low.

Fixed-line operators remain the most important customers for DSL equipment. The operations of fixed-line providers tend to be confined to particular regions, with tenders being the most common procurement method. The DSL CO (Central Office) equipment vendors are often able to exert considerable influence over the choice of DSL CPE supplier, and the DSL CPE market is characterized by low prices and a high level of customization. Furthermore, governments in many countries have sought to cultivate the development of their own IT industries, including DSL CPE production. As a result, the number of DSL CPE makers worldwide is quite large.

With tender prices falling, ADSL technology reaching maturity, and IC suppliers beginning to provide total solutions, the leading DSL vendors have found that undertaking production in-house is now less efficient than outsourcing. They have therefore started to entrust production of DSL CPE to Taiwanese ODMs.

In China, the availability of chipset total solutions helped DareGlobal and T&W to break into the DSL market. With their advantages in terms of local supply, they were both able to achieve rapid shipment growth. However, their prospects for future growth have now been clouded by the competition from Taiwanese ODMs. Chinese makers such as DareGlobal and T&W are being forced to either start outsourcing production or transform themselves into ODMs so as to be able to compete with the Taiwanese makers.

With the generational shift from ADSL to ADSL2+ that will take place in 2005, the DSL CO vendors and chipset suppliers are starting to form new alliances. Those DSL CPE makers that lack a CO production capability may find themselves at a disadvantage. It can be anticipated that ODM businesses will try to disintermediate the DSL CPE vendors by forming collaborative partnerships with the DSL CO vendors.

Appendix

Research Scope

This report focuses on two Chinese DSL equipment makers - DareGlobal and T&W Electronics. The research scope includes the evolution of these two companies and their DSL production, products and marketing.

Definitions

ODM

The ODM business model entails undertaking product design and manufacturing, but not direct retail sales or brand promotion. ODM providers either collaborate with customers on product specifications or independently design products according to customer specifications; the ODM provider then receives manufacturing orders upon customer approval. The ODM model links the sales capabilities of the ODM customer and the design and manufacturing capabilities of the ODM provider, developing a cooperative division of labor throughout the product's value chain.

DSL

DSL is a collection of technologies that provide high bandwidth over existing copper phone lines. DSL is available in a number of variations, such as ADSL (Asynchronous Digital Subscriber Line), SDSL (Symmetric Digital Subscriber Line), HDSL (High Bit-rate Digital Subscriber Line), G.shdsl (Symmetric High Bit Rate Digital Subscriber Line), and VDSL (Very High-bit-rate Digital Subscriber Line). At present, ADSL is the mainstream DSL technology, which supports both voice and data services. ADSL provides server approximately 50 times fast than analog or ISDN dial up access.

Glossary of Terms