Angling to branch out beyond its traditional European base, a major Scandinavian cable equipment vendor is making a play for the lucrative North American MSO market this fall.
Teleste Corp. -- a large Finnish manufacturer that specializes in such HFC network gear as optical nodes, amplifiers, repeaters and passives as well as related software and monitoring products -- is seeking to crack the US and Canadian markets by introducing a variety of Remote PHY, Fiber Deep and related headend optical products to cable operators. Instead of starting with Tier 2 and Tier 3 players, as do most vendors new to the market, it's looking to capture a meaningful chunk of that business in short order by targeting the largest MSOs.
"Obviously we are trying to be a serious player," Hanno Nanjus, senior vice president of network products for Teleste, told Light Reading. "We will only be satisfied if we can win Tier 1 MSOs."
As part of its charge into North America, Teleste is teaming up with a much smaller but established US cable vendor, New Jersey-based Antronix Inc. , that churns out HFC taps, splitters, amplifiers, filters and passives. In a joint venture announced two months ago, the two vendors will pitch optical nodes, headend optics and Remote PHY devices to North American cablecos as they expand their spectrum, extend fiber deeper in their HFC networks, split more nodes and shift equipment and functions from their headends to their access networks. (See Teleste & Antronix Enter JV for North American Broadband Market and New Cable JV Targets DAA Market.)
"It's an important piece of the puzzle," Nanjus said. "Our aim now is to develop the JV as our main go-to-market vehicle."
But the Antronix JV, named Teleste Intercept after one of the main product lines featured, is only part of Teleste's strategy to establish a beachhead in the New World. As it seeks to "Americanize" its brand, the major European vendor is also seeking other US partners to spread its products far and wide and become the serious player it aspires to be.
Of course, making a name for itself in North America is much easier said than done. In the fiercely contested US and Canadian markets, Teleste will be taking on the likes of such entrenched cable equipment makers as Arris Group Inc. (Nasdaq: ARRS), Cisco Systems Inc. (Nasdaq: CSCO), Casa Systems Inc. , Harmonic Inc. (Nasdaq: HLIT) and Nokia Corp. (NYSE: NOK). Plus, Teleste will have to contend with such other established vendors as Adtran Inc. (Nasdaq: ADTN) and Calix Inc. (NYSE: CALX), both of which are now aggressively trying to extend their reach from the telco to the cable space. (See Cisco Quantifies Cable Automation ROI and The Cable DAA Vendor Race Begins.)
Moreover, Teleste is launching its American invasion at a time when its overall finances are clearly slumping. In its second-quarter earnings report issued last month, the company said its net sales dropped 13% on a year-over-year basis to €58.7 million (or $69.7 million), while its operating profit plunged 339% to a loss of €9.3 million (or $11.1 million).
Teleste officials blamed the disappointing financial results largely on a restructuring charge and a goodwill impairment for its services business in Germany. Although they expect their results to improve in the second half of the year, they don't expect to match last year's net sales or operating profit for the full year.
Nevertheless, Teleste officials think they can overcome those obstacles and make strong inroads in North America. First, they note the large size and growth potential of the continent's HFC optical gear market, which is about three to four times bigger than the European edition. Nanjus cites industry estimates that the US and Canadian optical gear market, which does not include signal amplifiers and passive devices, is worth about $1 billion and growing at a 15% annual clip, or about $150 million a year.
"We strongly believe there will be growth," he said. "We are expecting that market to grow significantly."
Second, Nanjus points to the technology transition that the cable industry is just starting to undergo, particularly on the access network front. With cable operators increasingly embracing such more efficient, bandwidth-enhancing approaches as Fiber Deep, Distributed Access Architecture (DAA) and higher RF spectrum caps, sales and shipments of optical nodes, Ethernet links and other key network elements are expected to soar.
"A lot of old gear will go out and new gear will go in," Nanjus said. "Within this growth market, there are new technologies."
In particular, Teleste is counting on the cable industry's upcoming deployment of Remote PHY technology and expansion to 1.2 GHz spectrum limits to spur its equipment sales in North America. With Remote PHY now thought to be in trials or pilot deployments by several major cable operators, the first commercial rollouts are expected later this year or early next, with North American MSOs mainly leading the way.
"That's the big star," said Nanjus, referring to Remote PHY optical nodes. "That is obviously our biggest focus area... We believe the North American market will be the main early market (for Remote PHY)."
Third, Teleste executives contend that their nodes and other optical products have monitoring and maintenance capabilities built into them that rival products do not. Such capabilities could prove crucial in differentiating competitive products that are otherwise pretty evenly matched.
Finally, Teleste officials argue that they've learned a trick or two from their experience in the European market. Unlike their US and Canadian counterparts, for instance, European cablecos have already been making the upgrade to 1.2 GHz spectrum to add more bandwidth capacity to their shorter, denser access networks. As a result, Teleste has been busily installing optical nodes and other 1.2 GHz network for such major European MSOs as Altice and Liberty Global Inc. (Nasdaq: LBTY) for the past two years.
"We have certainly deployed more 1.2 GHz products in the field than anybody else," said Nanjus, noting that Teleste has shipped more than 140,000 1.2 GHz products so far, about half of them optical nodes. "We believe we have learned a couple of things."
— Alan Breznick, Cable/Video Practice Leader, Light Reading