In what Pannaway Networks describes as the biggest announcement of its history, the company has agreed to acquire the access division of TelStrat International . (See Pannaway Buys Division.)

The big deal is that Pannaway would land in the No. 2 position behind Calix Inc. (NYSE: CALX) in the Tier 2/3 access market. And Pannaway says it doesn't plan on stopping there, claiming it is in prime position to steal some of Calix's customers.

Pannaway says that the acquisition would bring its telco customer base from less than 100 to more than 300 and give the company a 40 percent market share of the 800 or so Tier 2/3 ILECs.

Pannaway says it wants to target customers of the Calix F5 GPON OLT. "The market wants to go to an IP core," says Pannaway VP of marketing Kevin Brown. "Calix only has the right to use the F5 as an ATM core product. We can upgrade Calix customers to an IP transport."

Kevin Walsh, VP of marketing at Calix, questions the logic there. "The uplink out of the F5 is Ethernet, and there is no way to put ATM cells onto an Ethernet connection." He adds that most of Calix's customers in the Tier 2/3 space are on the C7 Multiservice Access Platform, not the F5.

Jeff Heynen, an analyst with Infonetics Research Inc. adds that while he thinks the acquisition was a good move for Pannaway, the idea of going after Calix doesn't make a lot of sense. "They now have a significant share in Tier 3, but does that translate into the same number of ports shipped and revenues as Calix? Probably not."

Heynen adds that while Pannaway could end up with a similar number of customers as Calix, the businesses of those customers would be significantly different, as Calix has most of the bigger Tier 2 clients.

Technology-wise, the addition of the TelStrat unit would bring an assortment of new technologies to Pannaway's MAGNM-20 multiservice access platform, which Brown admits "had some gaps." Specifically, TelStrat would bring more GPON capabilities and the ability for customers to migrate to a Sonet ring.

But most important, according to Pannaway, is that the acquisition would bring it a lot more size. "We knew we needed to get as many customers as we could as quick as we could, and we needed to do it quicker than we had been," says Brown.

The acquisition is a cash and stock deal and is expected to close by the end of this month. Pannaway would not disclose the financial value of the deal.

— Raymond McConville, Reporter, Light Reading