Abstract

In 2005, in countries where DSL subscription is high, for example in Western Europe, North America, Japan, Taiwan, and Korea, DSL CPE will be bundled with value-adding services to lure consumers. This will significantly ramp up demand for high-end models characterized by high integration. As for China, India, Central/South America, and Eastern Europe, where the DSL penetration rates and incomes are low, demand will lie in value-line DSL models that are characterized by basic functions. However, telecoms will be forced to enact price reductions for both high-end and value-line offerings.

For example, bids in China Telecom's tender in early 2005 have compressed the price for one-port Ethernet ADSL routers to the 140-150 RMB (US$16.9-US$18.1; US$1= 8.3 RMB) level. Along the same line, bids for Indian operators' one-port Ethernet ADSL2+ router tenders have gone as low as US$14 to US$16 per model. The profit margins of high-end offerings have been narrowing swiftly as well. The prices that German and French operators asked of wireless ADSL routers and IAD have swung respectively below US$50 and US$60 as well. Faced with such relentless prices-cuts, Taiwanese makers have the choice to either develop high-end niche models or their branded business to maintain profits.

Chipset makers have already considerably lowered the cost of DSL modems and routers through integrating data pump, AFE (Analog Front End), and digital interface onto one processor, while controlling IP routing through software. High-end models will thus either have wireless MAC/BB (Media Access Control/ Bandwidth Broker) and RF (Radio Frequency) chips directly laid out on PCBs (Printed Circuit Boards), in place of PCI (Personal Computer Interface) WLAN modules, or have VoIP signals controlled through software rather than using a VoIP DSP (Digital Signal Processor) chip.

Nevertheless, chipset makers' total solutions often support only the basic functions. Equipment makers will need to bundle chipsets from other chipmakers in order to support information security or VoIP functions. Invigorating the ability of software R&D talent and increasing the programming flexibility of models will consequently become vital to the development of high-end offerings.

In regard to the branded business, although selling branded DSL offerings brings in higher profit, a different set of abilities is required. Familiarization with the telecom tender markets, customs policies, and telecom regulations in different countries will become necessary. The establishment of channels as well as repair and maintenance abilities will be equally important. Recently, DSL equipment warranties in China have been prolonged from one to three years, further challenging Taiwanese branded makers' channel management abilities.

In Western Europe and North America, where DSL penetration rate is high, emerging branded makers are required to resolve interoperability problems with legacy central office equipment. Yet in Eastern Europe, Central Asia, Southeastern Asia, and Central/South America, where DSL penetration is still low, emerging branded makers have a better chance to compete with brand-name vendors on equal ground, and be at more liberty to develop a promising future.

Appendix

Definitions

Business Types

OEM

The OEM business model entails carrying out product manufacturing or assembly according to specifications supplied by the customer. The OEM business model emphasizes production efficiency; thus, in order to lower costs, customers outsource manufacturing to OEM providers. This cooperation forms a division of labor among design, manufacturing, and sales.

OEM production for WAN includes shipments in both PCB (Printed Circuit Board) form and bundled with desktop and notebook PCs. Manufacturing undertaken for leading international vendors is also included.

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.

Retail Channel

Business from retail channels includes orders from brand-name retail channel players, such as Linksys or Netgear, with whom Taiwanese makers cooperate on design. Business from retail channels also includes private label shipments to end-market retailers.
Products

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, SDSL (Symmetric Digital Subscriber Line), HDSL (High Bit-rate Digital Subscriber Line), G.shdsl, and VDSL. 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.

DSLAM

A DSLAM (DSL Access Multiplexer) is a central office device for ADSL service that intermixes voice traffic and DSL traffic onto a customer's DSL line. The device also separates incoming phone and data signals and directs them onto the appropriate carrier's network.

IAD

An IAD is a DSL modem integrated with voice function. Two types of technology are applied.  One is called channellized VoDSL, which utilizes voice over ATM technology.  The other is VoIP based VoDSL, which utilizes voice over IP technology.

Shipment Destinations

''Asia Pacific'' does not include Japan, but includes China, Australia and New Zealand.

Glossary of Terms