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PacketFront Buys Into VOIP

Swedish broadband access vendor PacketFront AB has made its first acquisition, buying VOIP technology and home gateway specialist 42Networks AB to extend its FTTH technology portfolio into voice processing and extend its reach into the home.

42Networks, a management buy-out from Ericsson Business Innovation AB, developed VOIP processing technology and built a home gateway for FTTH deployments around those IP voice processing capabilities. PacketFront sells FTTH infrastructure to carriers, and has generated increasing business in Europe in the past year, but to date its product set has not included anything that sits inside the end user's home, though it has already sold 42Networks equipment in some small deals. (See FTTH Project Grows With PacketFront, PacketFront Claims Top Spot, PacketFront Touts FTTH Success, and Dutch Do FTTH With PacketFront.)

PacketFront CEO Martin Thunman says carriers are keen to source a full set of capabilities from his company, including CPE (customer premises equipment) that has a fiber interface, and into which the carriers' customers can simply connect their analogue home phones. That means the customer no longer has a need for a regular copper-based phone line, adds Thunman.

"Owning the CPE allows us to offer a more end-to-end system that enables digital voice over fiber. We have a series of customers with which we can generate very fast traction with this capability. The 42Networks VOIP technology is in its fifth generation, is very robust, and we have heard good feedback from carriers about how good it is," says the CEO.

And with one acquisition under his belt, Thunman now plans more. "We're going to make between two or three acquisitions a year during the next couple of years," says the CEO. And while he wouldn't elaborate on where he believes he can best supplement his existing technical portfolio, he noted that "at this point we don't see any need to add softswitching" to the portfolio.

Heavy Reading senior analyst Graham Finnie says the "acquisition will make sense because quite a few Packetfront customers will be looking to go beyond just the ONT point and provide the gateway in the home, even in an open access model of the type that municipalities are doing."

Finnie also suggests that this will enable PacketFront to rival the offering of its major FTTH competitor in Europe, Cisco Systems Inc. (Nasdaq: CSCO), which can also offer such capabilities with a Scientific Atlanta ONT (optical network terminal) and a Linksys VOIP adapter. (See BTI Offers OLS and Amsterdam Fires Up Muni Broadband.)

Terms and conditions of the acquisition have not been disclosed. Thunman says 42Networks made a slight profit in 2005, when its revenues were 42 million Swedish Kroner ($6.1 million), and is on course to break even in 2006, when revenues are expected to hit SEK65 million ($9.4 million).

42Networks has 50 staff, a headquarters in Stockholm, and an R&D center in Shanghai. Its products are deployed in 60 carriers in 30 countries, including the Netherlands, where it has one deployment of more than 50,000 units, and Croatia.

It has OEM deals with Ericsson AB (Nasdaq: ERIC), wireless broadband vendor Alvarion Technologies Ltd. (Nasdaq: ALVR), and Nexans, and has a partnership with Alloptics in the field of embedded VOIP solutions. Thunman says all these relationships will be maintained. "We don't regard Ericsson as a competitor," says the CEO.

42Networks raised SEK24 million at the beginning of 2006 from investors such as CapMan. (See CapMan Invests in 42Networks.)

While Thunman won't say anything about the acquisition's financial details, he confirms that no more money has been raised to fund the deal, and says the PacketFront board is still working towards an IPO in 2007 "as one option for an exit for our investors." (See PacketFront Gets $27M Deal, Eyes IPO.)

— Ray Le Maistre, International News Editor, Light Reading

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