The buzz in Silicon Valley is that edge routing startup TiMetra Networksis on the verge of closing a deal to be acquired by a large incumbent equipment provider.

Who’s buying? That’s the big mystery. Alcatel SA (NYSE: ALA; Paris: CGEP:PA), Siemens AG (NYSE: SI; Frankfurt: SIE), and NEC Corp. (Nasdaq: NIPNY) have all been mentioned as potential acquirers.

If TiMetra can pull off this deal, it will be the third telecom startup acquisition in less than two months -- the second in a week, if it’s announced in the next few days. Ciena Corp. (Nasdaq: CIEN) got the ball rolling last month when it acquired WaveSmith Networks Inc. (see Ciena Nabs WaveSmith). And yesterday Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA) announced it would acquire Vivace Networks (see Tellabs Snags Vivace for $135M).

According to one source, the TiMetra deal is valued at well under $100 million. Compare that to acquisition price tags in 2000: Lucent Technologies Inc. (NYSE: LU) spent about $4.5 billion on Chromatis, and Alcatel’s bid for Newbridge Networks was valued at about $7.1 billion (see Lucent Catches Chromatis).

But those valuations came in the topsy-turvy world of the bubble. During the telecom drought, any cash TiMetra can get is a good deal. The company, which has not yet announced a product, has only raised about $23.6 million in its first and only funding round, according to Venture Economics. Accel Partners and Redpoint Ventures, along with an unnamed “strategic partner,” were the original investors (see Timetra Trumpets Its Edge Router ).

According to several sources, TiMetra’s product still isn’t finished, and some speculate it could take another $20 million in cash to complete development and ramp up production. But investors are nervous about sinking more money into the company, because of the market uncertainty. They’re also leery of bringing in outside investors, for fear of diluting their holdings in a recapitalization. As a result, they’ve been looking for a buyer, say the sources.

About a year ago, the startup supposedly approached Cisco Systems Inc. (Nasdaq: CSCO) about a potential acquisition, but Cisco wasn’t interested. Cisco typically does not acquire routing startups. Instead, its policy is to acquire startups with technology that can be integrated into its existing routing code.

If Cisco's brushoff stifled TiMetra's efforts, the recent flurry of telecom acquisitions, along with the highly anticipated partnership between Lucent and Juniper, seems to have gotten them going again.

Alcatel seems to be the lead contender at the moment. Analysts covering the sector say it makes sense.

“Some people within Alcatel may claim they have an IP edge box, but they really don’t," says Kevin Mitchell, directing analyst with Infonetics Research Inc. “In fact, Alcatel has already acknowledged at a high level that they need some sort of IP edge device.”

Alcatel has the 7770 IP core router and the 7670 Routing Switch Platform IP/MPLS router. According to Mitchell, who tracks the core and edge IP router market, the closest Alcatel has come to having a true IP edge box was a product it acquired from Newbridge Networks. That product actually came out of Newbridge’s 1999 acquisition of Northchurch Communications. The Northchurch box offered IP VPN functionality. But after two years of being tossed around within Alcatel, the product was eventually cancelled, says Mitchell.

“Now they don’t have an IP edge play at all,” he adds. “At least, they don’t have one that they’ve been talking about.”

Siemens is also said to be eyeing TiMetra. The German telecom equipment giant currently has a partnership with Juniper Networks Inc. (Nasdaq: JNPR), which evolved from the sale of its U.S. networking subsidiary, Unisphere Networks, to Juniper last summer (see Juniper Nabs Unisphere for $740M).

But the recent Juniper/Lucent partnership may have rattled Siemens's cage a bit, say some sources. In addition to Lucent, Juniper also has reseller agreements with LM Ericsson (Nasdaq: ERICY) and Nortel Networks Corp. (NYSE/Toronto: NT).

“I think that Siemens might be kicking themselves for giving up Unisphere,” says one venture capitalist, who didn’t want to be named. “It’s now one of the leading edge router platforms on the market, and it’s being sold by everyone. There’s not much differentiation for them.”

If nothing else, the TiMetra rumors reflect the growing importance of the multiservice edge, which is taking center stage these days as carriers migrate their networks toward converged IP/MPLS backbones.

SBC Communications Inc. (NYSE: SBC), Verizon Communications Inc. (NYSE: VZ), and Qwest Communications International Inc. (NYSE: Q) have all announced plans to build IP/MPLS backbones (see Qwest Heads for Convergence). BellSouth Corp. (NYSE: BLS) announced just yesterday that it has completed its in-region MPLS network (see BellSouth Unveils MPLS Backbone). Large interexchange carriers, like AT&T Corp. (NYSE: T) and Sprint Corp. (NYSE: FON), are also converging their networks.

TiMetra did not return calls by press time; Alcatel declined to comment.

— Marguerite Reardon, Senior Editor, Light Reading