Optical/IP Networks

Alcatel to Drink WaterCove?

Network equipment vendor Alcatel SA (NYSE: ALA; Paris: CGEP:PA) is rumored to be in the final stages of talks to acquire wireless router startup WaterCove Networks Inc. for a minimal fee.

A source familiar with the negotiations tells Unstrung that the French infrastructure vendor is gearing up to take over the GGSN (GPRS Gateway Support Node) manufacturer, following the OEM partnership it struck with the startup last August (see WaterCove Wins Alcatel).

Another industry insider claims the purchase price is “virtually zero,” adding that WaterCove is teetering on the brink of bankruptcy after “blowing over $70 million in VC money.”

“Alcatel bought them for peanuts -- that's if they paid anything at all for them,” adds our man on the inside.

Such scuttlebutt is in keeping with recent comment on the Unstrung message boards suggesting that all is not well at the startup (read the posting here).

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 deal would further reduce the number of startups operating in the wireless router market, all of whom are attempting to lobby carriers into bypassing 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).

Last year rival startup Tahoe Networks shut up shop and saw its assets gobbled up by Finnish giant Nokia Corp. (NYSE: NOK), whilst Megisto Systems Inc. has had little to shout about in recent times (see Nokia Sweeps Up Tahoe).

Analysts believe a WaterCove acquisition would leave Megisto needing to prove its worth, especially in light of recent success from fellow startup Starent Networks Corp. (see Starent Shines On and Starent's Startup Double-Up).

“If WaterCove gets acquired, Megisto will stand out as one of the few remaining independent wireless router start-ups and will be pushed to show some real commercial success as soon as possible,” claims Current Analysis' Peter Jarich.

Alcatel itself is keeping schtum on the deal. “We don’t comment on rumors or speculation,” says spokesman Mark Burnworth.

WaterCove did not return calls by press time.

— Justin Springham, Senior Editor, Europe, Unstrung

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