ADC Jettisons Cellworx

In sad but eloquent testimony to the demise of ATM (asynchronous transfer mode) as an access technology, ADC Telecommunications Inc. (Nasdaq: ADCT) quietly discontinued its Cellworx product December 1.

ADC made no announcement about it but confirmed Light Reading's inquiry, prompted by email messages from former employees. "The product wasn't meeting expectations. It didn't produce the numbers and revenues we'd hoped for," says ADC spokesman Rob Clark.

He says ADC has decided to stop making the product completely. Some thought was given to selling the technology, but that strategy seems to have been abandoned. ADC will work with customers to make the product termination as easy as possible, Clark says.

The offices in Richardson, Texas, that housed the Cellworx product support team are staying open, because employees involved in other ADC products work there. But approximately 175 people are losing their present jobs. ADC is making every effort to reposition them within the company, Clark says. "We have plenty of opportunities at ADC," he says.

ADC launched its Cellworx Service Transport Node in mid-1997, offering it as a solution for carriers seeking to create virtual private networks for metropolitan area business customers. The product groomed T1/E1 connections onto Sonet OC48/SDH16c rings, using ATM to support multimedia traffic.

But for months now, it's been apparent that ATM in the access space just isn't selling (see ATM: Over and Out?) Indeed, ADC is only the latest of several carriers that have quietly backed down on ATM as an access solution. Others include Network Equipment Technologies Inc., Lucent Technologies Inc. (NYSE: LU), and Tellabs Inc. [(Nasdaq: TLAB; Frankfurt: BTLA), which seems to have swallowed, digested, and forgotten its $575 million purchase of Netcore in June 1999.

One reason often given for the ATM downturn is that its cost and complexity are a turnoff for major carriers. "Cellworx was an outstanding product," says Lonnie Martin, former head of ADC's transmission group and one of the product's earliest advocates. "But at the end of the day, there were no prime-time takers." He says the challenge of using ATM for virtual paths was just too revolutionary for many incumbent service providers to buy into. And those carriers, Martin says, are the ones whose sales continue to make or break telecom products.

Martin is presently the CEO of optical startup Whiterock Networks see White Rock Networks, Inc.), and he says that ATM won't play an immediate role in his company's products, set to launch in January 2001. "That doesn't mean we won't add it later on to our product family, if carriers ask for it," he says. "ATM's not done."

But Martin admits that alternatives are appearing that make economic sense. Upstarts such as Telseon and Yipes Communications Inc. are turning to Ethernet and IP as access solutions, for instance. And they're finding that the tradeoff in reliablity and quality of service isn't missed -- at least from the purely economic point of view.

ADC apparently caught onto this some time ago. "It's likely that carriers will be deploying a mix of wireless, DSL [digital subscriber line], and HFC [hybrid fiber coax] to deploy services over the next three to five years," said ADC VP P.G. Narayanan in a previous interview with Light Reading. While acknowledging that service providers eventually want to offer a single pipe for voice, data, and video delivery in the last mile, he didn't mention ATM as an alternative.

Jettisoning Cellworx isn't a signal of trouble for ADC, analysts say. Nor will it likely have much effect on the company as a whole. "I don't believe this means anything at all," said one Wall Street analyst, who asked that his name be withheld. "ADC has a very diversified product line that they prune from time to time. They're just reshuffling their priorities."

-- Mary Jander, senior editor, Light Reading http://www.lightreading.com

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