Canadian IT companies are cheering, or fearing Obama, too

Many Canadians will be watching the inauguration of Barack Obama with feelings of admiration, envy and awe.

But recent reports by National Bank Financial analysts suggest two IT companies here – Calgary’s Axia NetMedia and Waterloo, Ont.’s, Sandvine Corp. – may be also be looking at his new administration with either fear or delight because of two issues of interest on both sides of the border: Broadband infrastructure spending and net neutrality.

On broadband spending, Obama has already sent a US$550 billion, two-year spending bill to Congress that includes a proposed US$5.7 billion for expanding rural fixed or wireless broadband. That could benefit companies like Axia, which designs broadband networks around the world.

Meanwhile, the new President favours net neutrality, the principle that Internet service providers (ISPs) shouldn’t interfere with content traveling online, which could hurt Sandvine, a builder of deep packet inspection switches for ISPs. At least one Senator is expected to introduce limiting legislation this month.

Axia might be cheering because it’s in a consortium hoping to build, own and operate a fibre-to-the-premise network for Palo Alto, Calif., the heart of Silicon Valley. In a report issued Monday, National Bank Financial – the investment arm of the Montreal-based bank – pointed out that Palo Alto officials are expected to seek some grants under the federal budget which could seal the deal.

Axia, the report added, may not be the only Canadian company to benefit from the Obama broadband spending. “Canada has a number of communications technology vendors that benefit from the close proximity to the U.S.,” the report said. “There will likely be a multitude of vendors that will benefit from the U.S. stimulus package.”

On the other hand Sandvine, whose PTS 14000 and 8210 policy traffic switches allow carriers to scan and prioritize Internet traffic, might be looking a little worried at the new administration. Net neutrality legislation that forbids ISPs from giving priority to certain traffic could impact Sandvine sales, notes National Bank Financial in a separate report.

In November, an aide to North Dakota Senator Byron Dorgan told Reuters news agency that the lawmaker plans to introduce a bill this month that would bar ISPs from blocking Web content. Dorgan’s office couldn’t be reached for comment Monday, but the National Bank report noted that the wording of any legislation he or others would introduce is still unknown.

“We expect the net neutrality debate to continue for some time,” wrote analyst Kris Thompson, “which would introduce additional headline risk for Sandvine.”

In fact in a report issued late Monday, Thompson noted that the U.S. Federal Communications Commission has just sent a letter to Philadelphia-based cableco Comcast challenging its network management practice. Thompson concludes that for certain this means the net neutrality debate in the U.S. isn’t going away.

“Comcast’s new network management solution, which uses Sandvine’s gear, is supposed to de-prioritize all data packets equally at an abusive user,” Thompson added. “That would be a packet neutral solution. By not de-prioritizing Comcast Digital Voice data packets, Comcast would not be treating all packets equally.”

Sandvine CEO Dave Caputo could not be reached for comment.

These two issues have yet to be addressed by the government of Prime Minister Stephen Harper. Finance minister Jim Flaherty has been urged by several IT experts to boost rural broadband infrastructure spending.

The latest, in December, was SeaBoard Group managing director Iain Grant, who wrote Ottawa could “do more to lead Canadians into the digital age. From world leaders we are falling down the league tables. Government needs to find a way to get Canadians engaged with the potential that high speed broadband can offer.”

The federal budget is due Jan. 27.

As for net neutrality, it’s being handled by the Canadian Radio-Television and Telecommunications Commission, which might issue recommendations late this year. The commission will hold hearings in July on whether it should step into the debate. Written arguments from interested parties are due Feb. 16.

In November, the commission dismissed a complaint from the Canadian Association of Internet Providers that Bell Canada’s traffic-shaping policy was interfering with service ISPs buy from the utility.

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