Could Netopia Inc. be the next prize in the land grab for residential gateway and remote management software real estate?

It could be so, as sources say that several companies are now looking at the company, which sells DSL residential gateways and remote management software used by carriers to control the gateway from afar. This has become a strategic area for large equipment OEMs, which are looking at deploying and managing an array of new services distributed in the consumer's home.

Netopia is a public company that was relegated to the OTC market after the bubble burst, recently carrying a market capitalization of about $120 million. It is now trying to crawl back to a regular Nasdaq listing by returning to profitability. In its most recent public filings, it listed $27 million in revenue and a small proift of $594,000 for the quarter ended March 31.

Makers of broadband access gear, which have been forming closer ties with companies like Netopia, appear to be the most likely suitors. This comes in response to carriers' desire for a seamless hardware/software platform over which to deliver IP services to the home and manage them once they’re there, analysts say. (See RBOCs Want Inside Your House.)

"Especially for video, there's starting to be more and more integration between the access network and the home gateway or the termination point of the access network in the home, whatever that may be," says Heavy Reading senior analyst Rick Thompson. (See IPTV Drives Home Networking.)

Examples aren't hard to find, as Thompson points out: "You look at Cisco picking up Scientific-Atlanta and Linksys and making a whole play around home networking. Look at Alcatel investing in 2Wire, and Siemens has some pretty significant investments in the home networking space." (See Alcatel Buys Into 2Wire and Cisco to Acquire Scientific-Atlanta.)

"All of that is really a play to have a piece of that end-to-end triple-play network," Thompson notes. "So a company like Calix could extend its expertise in access networking into home networking as well."

Remote management software is the "middleware" used by carriers to control and monitor the residential gateway, the carrier's access point to the home network. The software lets carriers remotely configure devices like set-top boxes and VOIP phones, push new services or modify existing ones, manage QOS, and do a host of other things. (See Broadband Policy Servers.)

Netopia was demonstrating its residential gateways and remote management software solutions with Calix Inc. (NYSE: CALX) at Globalcomm. Thompson says, however, that acquiring a company like Netopia should not be seen as a "must-do" for Calix. (See Calix Networks Inc.)

Still, some nice things might come of it.

Remote management software vendors like Netopia might find their way into larger carrier accounts by becoming part of a larger access gear company. Netopia, for example, employs only about 100 people, identifies itself in SEC filings as the smallest company in its space, yet acknowledges that it needs to win ILEC accounts to hit its sales targets.

Carriers might like the idea of having one less vendor to deal with.

Calix points out that the people at the carrier who monitor and use remote management software are often the same people charged with watching the performance of the access network. Calix has developed an interface for use by carrier network engineers and support center personnel that monitors its c7 remote access boxes and the Netopia remote management platform, according to Calix VP of business development Rick Johnston.

"So that you don't have two separate management interfaces, what we're trying to do is simplify that interface for our customers so they don't have a separate Netopia interface but have that interface integrated into the Calix management system," Johnston says.

Johnston notes that Calix and Netopia have been working together for almost two years. Asked whether Calix was currently in M&A discussions with Netopia, Calix marketing VP Kevin Walsh was a little vague: "We wouldn't comment on that even if we were, or even if we weren’t."

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Netopia is also somewhat exposed by a lack of customer diversity. In 2005, three carriers contributed more than half of Netopia's revenues. Among them, BellSouth Corp. (NYSE: BLS) generated $7.2 million, or 26 percent, and AT&T Inc. (NYSE: T) generated $3 million, or 11 percent. This is problematic for Netopia as a standalone company, but access to these large accounts might be very attractive to an acquirer. (See BellSouth Taps Netopia.)There’s another problem. AT&T, like Alcatel, owns a substantial share of 2Wire Inc. , one of Netopia’s main competitors. (See 2Wire Unveils Home Gateway and AT&T Selects 2Wire.) Netopia has a strong relationship with BellSouth, but some believe it is the former SBC people who are calling the shots in the new combined AT&T/SBC/BellSouth. If that's true, the combined carrier could easily decide to standardize on SBC's preferred vendor for home networking hardware and software -- 2Wire. Netopia points out this worrisome state of affairs in a recent SEC filing.

Despite recently showing glimpses of profitability, Netopia has a long history of losses, reporting a loss of $1.9 million for the two quarters ended March 31. The company expects to report a loss for the current quarter, which it attributes to lower sales of its network management software, according to SEC documents. (See Netopia Reports Q1.)

On the plus side, the remote management vendors say carriers have now figured out they need the software and are taking action. As consumers demand more complex services like voice and video, carriers are looking to remote management software to extend their control into subscriber home networks. “Last year was the year of the investigation and research, and this year is the year of the deal,” says SupportSoft Inc. (Nasdaq: SPRT) director of digital services product marketing Rich Caballero.

“We know that to deliver triple-play services, which is where they’re headed, that they must build a foundation of remote management,” says Netopia VP of product marketing Jeff Porter. (See Cisco: Do-it-All Gateway on the Way .)

Part of the reason carriers have become more interested in remote management is the emergence of a standard called TR-69. A CPE WAN management protocol developed by the Broadband Forum , TR-69 provides a language through which remote management systems speak to devices in the home network. Aside from a few proprietary solutions, most remote management platforms have adopted TR-69.

Michael Greeson of the Diffusion Group says carriers are getting involved in remote management for three main reasons: “They know nobody is going to do it for them; they will get the [home network] support calls from subscribers anyway"; and they might as well view remote management as a way to sell more services in the home.

“I think SupportSoft and Motive are further ahead than most, because they were already in the business of remote management before they began supporting home networks,” Greeson says. (See Motive Hits Milestone .) Netopia and 2Wire, by contrast, were in the CPE business and moved into the remote management business because of a need for software to support their own devices.

Motive says it’s been selling its software to telcos since 1997 and that it has more than 40 Tier 1 telco customers to show for it. (See Motive Names New CEO.)

SupportSoft’s remote management software business is primarily focused on the cable space, although the company is beginning to make inroads with telcos. (See BellSouth Picks SupportSoft .)

For Netopia, the remote management business is still very new. The company reported its first "significant" sales of the software in the quarter ended March 31, and says it is relying on sales of the software to push its overall progress in the future, according to an SEC filing. (See Netopia Intros Gateway.)

— Mark Sullivan, Reporter, Light Reading