Nortel Ups the Ante on Cable VOIP

In a striking illustration of the old saying “the enemy of my enemy is my friend,” Nortel Networks Ltd. (NYSE/Toronto: NT) yesterday announced an OEM agreement with Nuera Communications Inc. (see Nortel OEMs Nuera Gateways).

Under the deal, Nortel will integrate, sell, and support Nuera’s voice-over-IP gateways as part of its PacketCable-qualified VOIP package. This gives both companies a cudgel against Cisco Systems Inc. (Nasdaq: CSCO), which has attained PacketCable qualification for its VOIP softswitch and cable modem termination systems (CMTSs), but not for its gateways.

Led by Cable Television Laboratories Inc. (CableLabs), a nonprofit research and development consortium, PacketCable is an initiative to ensure interoperability of equipment that uses IP technology on cable networks (see CableLabs Issues PacketCable Spec).

To gain PacketCable qualification, equipment makers must submit their products to CableLabs for testing. Getting approval can be costly, but the payoff is increased sales to cable operators, many of which require qualification.

Nuera sells the only VOIP gateway (also known as a media gateway) that has attained PacketCable qualification so far. By packaging the product with Nortel’s PacketCable-qualified softswitch, Nortel can claim it offers the only integrated gateway and softswitch that have both achieved qualification. Add to that Nortel’s professional services, and the company has a compelling argument when it vies against Cisco for cable VOIP deals.

According to Craig Lee, VP of marketing at Nuera, Cisco has been recommending to its customers that they need PacketCable qualification for their softswitches but not for their gateways. “They’re talking about PacketCable qualification out of both sides of their mouth,” he snipes. “You need it when it’s convenient for them, and you don’t need it when they don’t have it. The best way to combat that situation is to really get behind PacketCable, and that’s what we and Nortel are trying to do right now.”

Daniel Etman, product manager of Cisco's cable business unit, says that Cisco has been committed to PacketCable "from day one" and notes that its softswitch was at one time the only media gateway controller to be qualified by CableLabs. Its CMTS products (catchily named uBR7246VXR and uBR10K) are also PacketCable-qualified.

Etman says PacketCable qualification for its VOIP gateways is "clearly on our roadmap... It is technically feasible today and is a sensible strategy to deploy our gateways with a subset of PacketCable, and transition to full PacketCable once we make that available."

Nortel's own VOIP gateway is not PacketCable-qualified. The company says it will sell its gateway and Nuera’s based on customers’ requirements. “In cases where a cable company doesn’t care about PacketCable, Nortel is obviously going to push their gateway first and foremost,” says Kevin Mitchell, an analyst at Infonetics Research Inc.

Nortel says it has no immediate plans to pursue PacketCable qualification for its gateway. “Nortel has maybe 80 to 90 percent of what it takes to become CableLabs-certified for a lot of their elements,” says Danny Klein, an analyst at Yankee Group. “The only reason they haven’t pursued it is because they are following their customers’ time lines, and a lot of their customers aren’t necessarily asking for certain features that require them to become CableLabs-certified today.”

Besides PacketCable qualification, Nortel’s gateway differs from Nuera’s in another important way. The Nortel product is designed for high-density use -- that is, lots of concurrent calls in one geographic region. By contrast, Nuera’s gateway is intended for lower densities, which may appeal to cable operators that are deploying VOIP for the first time.

“We expect most of our traction to be with the Nuera gateway,” says Elaine Smiles, director of cable marketing at Nortel. “Nuera scales well at the low end, which is exactly what the cable operators are looking for now with their market entry strategy.” So far, Nuera and Nortel share one cable VOIP customer, Cox Communications Inc. (NYSE: COX), which they won last year (see Cox Chooses Nortel and Nuera). That deal fueled discussions between the companies, which are in trials with several other as-yet-unannounced customers, they say.

The agreement could open a significant sales channel for seven-year-old Nuera, which so far has been a small but worthy competitor in a market dominated by companies like Cisco, Nortel, and Sonus Networks Inc. (Nasdaq: SONSE). The company is carving a niche for itself by offering a gateway designed with cable operators in mind. It has also attracted wire-line and wireless telephony customers, including Telkomsel, the largest cellular provider in Indonesia (see Telkomsel Uses Nuera VOIP Kit).

According to D&B’s estimate, Nuera’s U.S. sales totaled $14 million last year. Also last year, the privately held company raised a $20 million financing round led by Cox Communications, Comcast Interactive Capital, Sandler Capital Management, and Argo Global Capital LLC (see Nuera Raises $20M).

— Justin Hibbard, Senior Editor, Light Reading