Nortel Gets Back Into Broadband

Nortel Networks Corp. (NYSE/Toronto: NT) this morning announced its effective return to the broadband access marketplace, via "strategic alliances" with three players in this space -- Calix Networks Inc., ECI Telecom Ltd. (Nasdaq/NM: ECIL), and Keymile AG (see Nortel Partners on VOIP).

Nortel quit the broadband access market when it sold its digital loop carrier (DLC) business to Zhone Technologies Inc. (Nasdaq: ZHNE) in August 2001 (see Zhone Acquires Nortel's Access Gear). Now it appears to have decided to get back in, via partnerships with existing players.

Calix makes a "multiservice broadband loop carrier," which enables carriers to migrate their telephone services from circuit- to packet-based infrastructure, so they can roll out triple-play services, incorporating voice, video, and data (see Could VOIP Boost DLC Market? ). Broadband loop carriers also provide a stepping stone towards carriers rolling out fiber-to-the-premises (FTTP) technology.

Rumors of a possible deal between Nortel and Calix were reported by Light Reading a few weeks ago (see M&A's New Currency). Today's news will heighten speculation that Calix will stage an IPO or will end up being acquired by Nortel.

"Calix isn't a desperate company seeking an out. This will help them with distribution and increase their visibility on Wall Street. I'm betting IPO rather than acquisition," says Scott Clavenna, Chief Analyst at Heavy Reading.

Keymile offers the European and Asian equivalent of the Calix equipment, which targets North American markets. Keymile, headquartered in Vienna, was formed from Ascom Transmission AG and Datentechnik AG in 2002 (see Keymile Launches). It since acquired a third European equipment vendor, Kommunikations-Elektronik GmbH (see Keymile Acquires Germany's KE).

The European and Asian market for triple-play services and DLCs might be bigger than the North American one (see DLCs Gain Foreign Currency. In other words, Keymile may be an even hotter property than Calix.

ECI Telecom's specialities include FTTP gear, DSLAMs, and optical line termination equipment. It's already working with Nortel on a couple of VOIP-over-DSL projects, for Telecommunications Services of Trinidad and Tobago and Cable & Wireless Cayman Islands.

Walt Megura, Nortel's general manager of broadband networks, says the alliances aim to extend Nortel's "leadership of the packetization of the core to access networks." He says it's more than Nortel needing a VOIP-over-DSL story. It's promoting an "ultra broadband" concept that emphasizes higher bandwidths than DSL (10 to 20 Mbit/s), emphasizes service control and intelligence, and emphasizes applications embracing video as well as voice.

— Peter Heywood, Founding Editor, Light Reading

rbkoontz 12/5/2012 | 2:26:03 AM
re: Nortel Gets Back Into Broadband Nortel has been trying to get back into access with their own MG9000 access product. This move is a tactical play until the MG is ready to go. We will not see these partners take on any strategic role in Nortel until the MG is cancelled or capped at POTS-only.

Nortel is notorious for the way it treats "partners". With this beauty of an announcement, Nortel has finally formalized what I'll call the the "Nortel Woodshed Program". Each of these 3 vendors - ECI, Calix, and Keymile - are just big enough to have a product that seems to work but not big enough to actually have any balance in the relationship. Nortel's approach to partners is to use them when needed, frequently take out back to the wood shed for a whoopin', and burry those corpses no longer adding value to Nortel shareholders.
dljvjbsl 12/5/2012 | 2:26:01 AM
re: Nortel Gets Back Into Broadband
frequently take out back to the wood shed for a whoopin', and burry those corpses no longer adding value to Nortel shareholders.

On the contrary, Nortel senior managemet is very well treated and generously compensated
Mezo 12/5/2012 | 2:26:00 AM
re: Nortel Gets Back Into Broadband Bonehead, he's talking about the partners getting a whoopin and buried...time to buy a vowel.
dodo 12/5/2012 | 2:25:57 AM
re: Nortel Gets Back Into Broadband MW

If my memory serves me right, the media gateway is part of the Succession portfolio and was originally intended (circa 1998-1999)for the DMS peripherals and DLC migration.Remember the inside struggle between Raleigh and Atlanta after the fiasco of the 1 megModem and the push for ADSL from Alcatel.

Since Norty does not own the TR-08 and GR-303 DLCs anymore, the nearest point in the access they can go will be the RSC or OPMs ( excluding the data-based portfolio). hence they need this partnership- anyway ECI and its brethren has been in Nortel's books since the 90's for OC's line cards.

It is too bad that the strategic thinkers of the optical bubble years thought that Access was a fruitless business.

Big Red 12/5/2012 | 2:25:56 AM
re: Nortel Gets Back Into Broadband Such a boring announcement.

Let's see:

Declinging revenues for the past three years.

Profitability after you RIF over 60% of your company and close 75% of your offices and buildings.

Meet tiny little revenue and profit numbers after you give the Street no guidance since 1999 and set expectations in the toilet.

Start to realize that you have no growth in sight.

What to do ? Start to try and partner and invest in markets that you divested in for 3 years.

Brilliant !!

Big red

exnortel2 12/5/2012 | 2:25:48 AM
re: Nortel Gets Back Into Broadband Agree. Why would Calix partner with a loser like Nortel instead of the big brother Cisco ? Any one cares to comment ?
atmguy 12/5/2012 | 2:25:46 AM
re: Nortel Gets Back Into Broadband
May be that is the only compnay that would partner with Calix. These are the guys who made a big show of patenting the coffee cup added to their chassis!
StuPendas 12/5/2012 | 2:25:45 AM
re: Nortel Gets Back Into Broadband >>Agree. Why would Calix partner with a loser like Nortel instead of the big brother Cisco ? Any one cares to comment ?<<

Maybe Cisco was getting a bit stingy with Calix, so the top dog at Calix decided give a warning shot to Cisco that there are other potential suitors out there in order to sweeten the offer? hmm.....
Last go around he got $7 billion from Cisco. I realise that was in the good 'ol days, but he still knows how to negotiate a favorable deal. just speculating on my part, but if I could buy Calix stock, it would be 50% of my portfolio

billy_fold 12/5/2012 | 2:25:42 AM
re: Nortel Gets Back Into Broadband I on the other hand wouldn't touch Calix stock with a ten foot pole (coffee cup holder and all)

materialgirl 12/5/2012 | 2:25:38 AM
re: Nortel Gets Back Into Broadband They also forgot the numbers. NT could not report its September quarter because they had a "little" $950M mis-statement of earnings dating back to 1999 or 2000. They blamed it on having to adjust to a fast-changing environment.

Then they announce Q4, albeit with UNAUDITED numbers. Nobody does that. Q4 numbers are always the audited ones. No one brought this up and I wonder what the numbers have been since 1999.
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