Video views and revenues

The bloom is long off the video rose. The Internet drives wireline network investment. If video blooms again, it won't happen for a decade or more.

So goes the conventional wisdom.

No executive ignores conventional wisdom. But not everyone takes it at face value. After all, it may be more conventional than wise.

If the conventional wisdom about video is true, ADC Telecommunications should be hurting. ADC lacks an Internet story. Instead, it made pioneering bets on video.

ADC's chairman, Bill Cadogan, has been an energetic, outspoken, even contentious proponent of network investment based on the future of video. ADC didn't just invest Cadogan's words in video. ADC backed its video vision with hard cash. It invested in acquisitions, notably American Lightwave Systems, and ambitious product development.

The pioneer takes the arrow. Cadogan must feel like a pin cushion by now, right? Hardly. Rather than sound the retreat, ADC is blowing reveille. ADC thinks it is dawn in the video age, not sunset.

Video "is the fastest growing transmission application," Cadogan notes, growing faster than data, which is growing robustly, or voice, which has a curve that resembles your desktop. ADC's video revenues are up 90% for the first half of fiscal 1997, just ended, over the same period of fiscal 1996, he says. At the beginning of the decade, ADC's annual video revenues were less than $10 million. This year, video revenues will top $150 million.

Cadogan sees a shift in the market's approach to video. The new attitude is "more reasonable" and the new market is less focused on multichannel video. ADC is shipping video products to cable companies, telcos, competitive local exchange carriers and, increasingly, overseas carriers, particularly new companies preparing to compete with well-entrenched PTTs. ADC's international business grew more than 60% in fiscal 1996 and will grow about that fast again this fiscal year.

Customers use ADC's video products to enable new services and to "fortify" existing networks. Compressed digital video platforms are being used in new applications like distance learning. ADC also plays in the booming digital subscriber line market and the developing wave division multiplexing market.

Wireless is also a strategic technology for ADC. The focus is on RF coverage and capacity, and network monitoring and planning. Cellular business is "steady, solid," Cadogan says, but "the sweet spot today is clearly PCS." As part of its PCS effort, ADC expects to begin offering vendor financing to PCS customers. This fiscal year, ADC projects wireless revenues in the $75 million range. In the next five years, Cadogan expects to build the wireless pile to $400 million.

In addition, ADC is bullish about the wireless local loop market, both overseas and at home. WLL is "a natural extension to our wired platforms," Cadogan says.

WLL is a popular infrastructure choice for areas that lack mature wired infrastructures. WLL also will play an important role in areas that possess wired infrastructure, including the U.S., he believes, particularly among new competitive carriers in the process of challenging incumbent service providers.

ADC does not see wireless and video as permanently discrete businesses. It expects the two will come together to carry broadband multimedia over both wireless and wireline networks soon after the turn of the century. PCS operators, in particular, are likely to be early adopters of wireless broadband services, once they've completed the buildout.

Video, DSL, WDM and wireless growth, as well as its burgeoning international business, are pushing ADC into a bigger league. In its last four quarters, ADC reports revenues of slightly more than $1 billion, a first for the company.

ADC won't sit on the money. It will continue to be active in the acquisitions market, targeting smaller companies with expertise in leading-edge technologies that can benefit from ADC's distribution and management strength.

Will a billion-dollar company pass on the Internet boom? Don't count it. Internet "is not an area where we play today," Cadogan notes. "But it is an area that we see as a future opportunity." So what's ADC's Internet strategy? Cadogan won't say, yet. "Stay tuned," he laughs.

"Tuned." That's not a verb from the voice world, from industry's past. It's a verb from the video world, the industry's future.