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In Autumn 2010 I called out a little-known Israeli company called Allot for our collective consideration.

For those of us who feared a foreign micro-cap, in the intervening peroid it has since grown up from a cap of $111M to $644 and may now be worth your re-consideration. Allot is now my 3rd largest holding and one I believe in more than when I first bought. It's a complex enough technology to understand if you come from a non-telecom background, so allow me re-explain the story.

* Telecommunication is the electronic transmission of information over long distances. Where once this meant voice, it now, and more so in the future, means broadband data

* The term dumb pipe refers to a telecommunication operator’s network being used simply to transfer bytes between the customer’s device and the internet. This is not ideal, as the cost of building a national telecommunication network is massive. Adding more bandwidth is not an efficient long term business solution for improving a customer’s experience

* Imagine you paid a monthly subscription for water to your home where after your initial 1,000 gallon monthly bundle you’d pay for each additional gallon. If this was the case it would be reasonable to expect the utility provider to offer a service where water is delivered with priority to, say, the kitchen. followed by showers, allowing toilet cisterns to fill when instant needs have been met. This analogy is similar to your broadband usage; a video call needs to be instant, while an email can wait a few seconds before leaving your account

* Allot's Deep Packet Inspection technology enables mobile service providers to identify, classify, prioritise, and shape traffic, resulting in enhanced performance and profitability. Their technology turns dumb pipes to smart pipes.

Competitors: Cisco are the investible giant with DPI in their service portfolio. There are numerous other privately held companies offering similar services such as Procera and The Now Factory.

Catalyst: Global mobile data traffic grew 2.3-fold in 2011, more than doubling for the fourth year in a row, with mobile data traffic was eight times the size of the entire global Internet in 2000. Mobile video traffic exceeded 50 percent for the first time in 2011, while a fourth-generation (4G) connection generated 28 times more traffic on average than a non-4G connection.

Comment: Mobile data traffic will reach the following milestones within the next five years:

Due to increased usage on smartphones, handsets will exceed 50 percent of mobile data traffic in 2014.
Tablets will exceed 10 percent of global mobile data traffic in 2016
China will exceed 10 percent of global mobile data traffic in 2016

The above statistics support the need for, in Allot’s (inelegant) words, a set of tools that transforms broadband pipes into smart networks that can rapidly and efficiently deploy value added Internet services for both the network and the subscriber.

What do you think? Will telecom networks need to deploy more than just new towers, antennas and fibre in order to deliver what their customers need? Can Allot capitalise on this growth?


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