Network equipment vendor Alcatel SA (NYSE: ALA; Paris: CGEP:PA) has officially announced its acquisition of wireless router startup WaterCove Networks Inc., as exclusively revealed by Unstrung earlier this month (see Alcatel to Drink WaterCove?).

Neither party would reveal any financial details, declining to comment on industry speculation that the deal is a firesale, in light of WaterCove’s delicate financial status (see Alcatel Acquires WaterCove).

WaterCove was one of the first startups to set up shop in the wireless router, or GGSN (GPRS Gateway Support Node), space. GGSNs provide the primary interface between a carrier’s radio and packet core networks. In their next-generation guises, wireless routers can also handle service creation, billing, and IP traffic management tasks.

The company experienced limited success in its attempts to persuade carriers to bypass the usual roll call of established vendors such as Juniper Networks Inc. (Nasdaq: JNPR), Cisco Systems Inc. (Nasdaq: CSCO), Nortel Networks Corp. (NYSE/Toronto: NT), and Lucent Technologies Inc. (NYSE: LU).

Its only win was a high-profile deal with Orange UK (London: OGE) at the end of 2002, serving the carrier’s 13.1 million subscribers (see Orange Juices Watercove). Such a project is arguably a poor return on investment in light of the $70 million of venture capital funding poured into the startup by Charles River Ventures, Sprout Group, Orange Ventures, and Bessemer Venture Partners (see Watercove Raises Further $20M).

The acquisition follows an OEM partnership struck between the two companies last August, which saw Alcatel snub traditional GGSN partner Cisco (see WaterCove Wins Alcatel). Alcatel’s Roland Thies, deputy VP for partnerships, mobile core activities, claims that today’s announcement was not part of the initial venture.

“It was something we didn’t specifically think about,” he comments. “At the time it was a strategic decision to develop the business. We were just testing the market.”

Thies is unable to confirm the exact number of WaterCove employees affected by the takeover, stating only that the company is “a mid-sized startup” with fewer than a hundred on staff. He stresses that there are to be no redundancies, with all headcount staying put in WaterCove’s Boston offices. “All of the employees are joining us... They all have knowledge we don’t have, so we will keep them.”

Today’s deal further reduces the number of startups operating in the wireless router market (see Having a Flutter on the GGSNs). Last year, rival startup Tahoe Networks sold its assets to Finnish giant Nokia Corp. (NYSE: NOK), while Megisto Systems Inc. has been extremely muted in recent months (see Nokia Sweeps Up Tahoe).

“Following Nokia's acquisition of Tahoe Networks, Alcatel's move to acquire WaterCove establishes a trend of large industry players absorbing startups specializing in content-based billing,” comments Ken Rehbehn, principal analyst for wireless infrastructure at Current Analysis. “WaterCove's product is distinguished by flexible support for key telecom SS7-based billing interfaces and provides a great complement to Alcatel's already impressive billing portfolio.”

Calls to WaterCove were met with an Alcatel greeting, and all enquiries are being forwarded to the French vendor’s Paris headquarters.

— Justin Springham, Senior Editor, Europe, Unstrung