Nortel Networks http://www.nortelnetworks.com announced today that it had agreed to pay $3.25 billion in stock for Xros Inc. http://www.xros.com, a startup which recently unveiled the first all-optical cross-connect to break the 1,000 port barrier.

On the face of it, the deal gives Nortel a head start in dealing with the problem of interconnecting the explosion of wavelengths in carrier backbones resulting from the widespread deployment of dense wave division multiplexing . It also fits well with previous acquisitions - notably Qtera Corp with long distance transmission offerings and Cambrian with metro DWDM developments.

However, it's unclear whether Xros's X-1000 cross connect will deliver everything Nortel expects, particularly when it comes to setting up and tearing down wavelengths automatically, in response to signaling.

"It's a fat, dumb switch" according to Nicholas De Vito, vice president of product management and business development at Tellium, Inc. http://www.tellium.com, a startup with a competing optical cross-connect. De Vito says Xros's management system is an after-thought. It requires carriers to install a separate, out-of-band signaling network and that, he says, is a non-starter. Signaling needs to be in-band, and that needs to be built into switches from the outset.

Nortel was unavailable to address this specific point (watch for an update tomorrow) but said earlier that it would be easy to integrate Xros's X-1000 into Nortel's existing net management system. It's unclear whether this would include automatic protection - setting up alternative wavelengths to reroute traffic around failures. Last week, Xros president and CEO Greg Reznick told Light Reading that this was something that the X-1000 couldn't do at present (see Xros Launches First 1000-Port All Optical Cross Connect).

The price that Nortel is paying for Xros also ought to raise some eyebrows. The startup only has 90 staff, so the bill comes to around $36 million a person. That's significantly higher than the price per person that Cisco paid for Cerent, which at the time seemed quite shocking. Still, it's not real money - it's Nortel shares -- so nobody seems to care. "We've paid a very, very fair price for this," says Clarence Chandran, President of Nortel's service provider and carrier group.

by Peter Heywood, international editor, Light Reading http://www.lightreading.com