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VoIP Systems

Sonus Looking at Nortel Assets, Cedar Point

The list of suitors for Nortel Networks Ltd. 's VoIP and switching assets is growing and may include Sonus Networks Inc. (Nasdaq: SONS), according to Avian Securities LLC senior research analyst Catharine Trebnick. In a research note to clients this week, Trebnick named Sonus as a bidder for Nortel's assets and all of Cedar Point Communications Inc.

Sonus declined to comment on the matter. Trebnick, however, kept going. "We see development on this front as key with both potential acquisitions providing revenues for growth outside of Sonus's challenged core organic business," she writes.

Sonus had cash and investments totaling $386.1 million at the end of the first quarter.

Cable and much more
If Sonus were to nab Cedar Point, it would boost the vendor's presence significantly at major and mid-sized MSOs such as Comcast Corp. (Nasdaq: CMCSA, CMCSK), Charter Communications Inc. , and Insight Communications Co. Inc.

Historically, Sonus has had little luck gaining cable traction, but did score deals last year with PTV Telecom of Spain, and Telenet , Belgium's largest MSO.

But snaring Cedar Point would be a breakthrough of sorts. The Derry, N.H.-based vendor has been chased by acquisition rumors for years, and Sonus, Metaswitch Networks , and Motorola Inc. (NYSE: MOT) are among those that have gone after Cedar Point at one time or another during the VoIP specialist's nine-year history. In fact, Sonus has made a play for Cedar Point at least twice, but got shot down each time, multiple industry sources tell Cable Digital News.

Cedar Point declined to comment on the Sonus rumor, but the company, amid a 15 percent staff layoff, did acknowledge in March it would "evaluate all opportunities" when asked about the company's acquisition prospects. In the meantime, it's been busy getting its flagship Safari3 platform ready for PacketCable 2.0 and the Internet Multimedia Subsystem (IMS), trying to boost flat annual revenues with a "cap and grow" strategy (targeted to MSOs that are looking to replace legacy gear from other suppliers), and pursuing growth internationally, notching recent wins in Russia, Belgium, and Germany. (See Cedar Point Cuts Staff as Slowdown Bites, Cedar Point Sets Sights on Russia, Cedar Point Tees Up Replacement Program, NetCologne SIPs With Cedar Point, and 3Stars Aligns With Cedar Point.)

Cedar Point has shipped more than 5 million lines since 2000. It generated about $60 million in revenues last year.

Cable industry insiders think Sonus offers a nice fit for Cedar Point, noting that the vendor is getting long in the tooth as a "startup," and needs to move ahead with an exit strategy, whether that's via acquisition or an IPO. The latter, of course, is considered the less likely option of the two, particularly in today's economic environment.

Meanwhile, a deal for Nortel's VoIP and voice switching assets would bring in cable accounts such as Charter and Cox Communications Inc. . (See Cox: We Still Love Nortel .) Nortel is in bankruptcy but some doubt has been cast as to whether it will be able to emerge from it, with a growing likelihood that it might have to sell off everything and turn off the lights. (See Nortel: Closing Time?, Nortel Stays the Course, Declares Victory, and Should Nortel Be Sold for Parts?.)

A Nortel spokeswoman also declined comment about any overtures from Sonus and others, but noted that the company is exploring "a number of options and speaking to a number of parties."

Sonus may not have to spend much for Cedar Point, but it will have to compete against Huawei Technologies Co. Ltd. and Nokia Siemens Networks. Trebnick notes that Huawei has has the inside track on Comcast's IMS build, and NSN has strengthened its presence at Time Warner Cable Inc. (NYSE: TWC). Nokia Siemens is also "short-listed" for second generation softswitches at Comcast and Cablevision Systems Corp. (NYSE: CVC), she writes. But a successful play for Cedar Point could at least get Sonus in the door as MSOs prepare to upgrade and migrate to PacketCable 2.0, an architecture that borrows heavily from IMS. (See PacketCable 2.0: Back on the Front Burner.)

The Nortel assets would give Sonus much more scale, however, since it would offer 24 percent of the total addressable softswitch market, behind only Nokia Siemens's 25 percent, according to Infonetics Research Inc. data.

Trebnick said Nortel's VoIP and voice unit brought in $584 million, with $117 million from media gateways and $367 million from softswitch sales, in 2008. The downside is that Sonus will be competing for those assets and may have to pay a premium to obtain them. She also points out that the Nortel may also present an integration challenge for Sonus, a vendor that doesn't have much experience with large acquisitions.

— Jeff Baumgartner, Site Editor, Cable Digital News

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