The digital loop carrier (DLC) market, by all outward appearances, should be going through some kind of a shakeout. But that shakeout has been long in coming.

Most industry pundits put DLCs into three generations. There are the old channel banks used to extend local loops (like the Lucent SLC series); the "next-generation" DLCs that were built for voice networks but later added some data capabilities (like Alcatel's Litespan 2000 series); and the new, new things -- the broadband DLCs that are just starting to emerge (see DLC Vendors in Next-Gen Name Game).Here's why everybody's waiting for the shakeout: The second and third generation DLCs -- the data-capable lot -- are where all the action is. There's a ton of companies that can replace or update those systems, but it's not clear the market will hold everyone.

For starters, there hasn't been much consolidation in the DLC market during the past year. Zhone Technologies bought NEC Corp.'s (Nasdaq: NIPNY) first-generation DLC business (eLuminant) in February. That move gave Zhone three generations of DLC in its arsenal. In April, Motorola completed its takeover of Next Level Communications and soon thereafter began slashing staff (see Headcount: Copy This).

Besides a lack of consolidation, there is an influx of startups and smaller companies that don’t appear to be hemorrhaging financially, a sign that the DLC market battle might go on a while.

The incumbent vendors in the space, of course, are taking issue with the upstarts in their once-cozy market. "It's amazing to me that people are still driving money into this space," according to Jim Sackman, chief technology officer at Advanced Fibre Communications Inc. (AFC) (Nasdaq: AFCI).

The broadband DLC market (comprised of second and third generation systems), was a $676 million market worldwide in 2002, according to Infonetics Research Inc. In terms of revenues, Alcatel SA (NYSE: ALA; Paris: CGEP:PA) owned half the market, Lucent Technologies Inc. (NYSE: LU) held 20 percent, and AFC held about an 11 percent share.

This year, Infonetics predicts the DLC space it tracks will bring in $810 million in worldwide revenues. Assuming the top three market share leaders do nothing more than hold their ground, that leaves at least a dozen vendors slugging it out for the remaining roughly $240 million in revenues.