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Small firms may suffer as Lucent steps in

Lucent's latest equipment coup may send a warning to smaller firms that have made a name for themselves as specialists in the Internet access equipment market.

Lucent Technologies' latest equipment coup may send a warning to smaller firms that have made a name for themselves as specialists in the Internet access equipment market.

Lucent today unveiled new technology for deployment of digital subscriber lines, or DSL---a high-speed Net access alternative to cable-based modems that utilizes existing phone lines. Networking equipment upstarts like Copper Mountain Networks and Accelerated Networks, among others, also offer such technologies.

The new equipment is targeted at the growing number of Net service providers that are attempting to keep up with the demand for high-speed residential and business Internet connections. While small today, the market for DSL technology is expected to balloon to 21.5 million subscribers by 2003, according to market researcher Cahners In-Stat.

Such growth represents a huge opportunity for the likes of Lucent, as well as for competitors like Cisco Systems, Alcatel, and Nortel Networks, along with some of the smaller niche firms such as Copper Mountain.

But as Lucent makes its way into the DSL market, equipment newcomers like Copper Mountain and Efficient Networks may suffer from increased competitive pressure. Following Lucent's announcement today, stock in Efficient fell 2 percent, while Copper Mountain shares slid more than 5 percent.

Too much market to cover
In the short-term, market demand should allow smaller firms to flourish in the shadow of giants like Lucent, analysts said. But like most technology niches, DSL equipment makers will no doubt consolidate, with customers choosing to purchase their equipment from established companies.

"I do think it's a threat," said Shannon Pleasant, senior analyst with Cahners In-Stat, of Lucent's entry into the DSL field. "This is a shift. We'll start seeing some acquisitions of the small guys, I would think."

But many companies don't see Lucent's entry as a death knell for their business. "You pick a strategy and stick with it," said Kevin Walsh, vice president of marketing at Accelerated Networks, a start-up maker of DSL equipment. "What this does is validate what we're doing."

As a measure of the opportunity, Cahners In-Stat recently released a study that predicts that equipment that supports voice over DSL--just one of many services using the phone line technology--will become a $1 billion market by the end of 2000.

"It's certainly signifies more competition from players that are better placed with service providers," said Claudia Bacco, director of DSL consulting for industry consultants TeleChoice. "But today I think there's a lot of opportunity for the smaller players."

Copper Mountain signed a three-year agreement that allows Lucent to resell its DSL technology last December. Both sides say that pact will remain in place.

"We have a very prosperous relationship with Lucent," said Diana Helfrich, vice president of marketing communications at Copper Mountain. "They are our most important partner. We continue to announce customer wins with them. Those speak for themselves."

Lucent said they will continue to offer Copper Mountain's technology, as service providers deserve a choice, executives said.

Amra Tareen, director of product marketing for access networks at Lucent, said the company would "continue the relationship" with Copper Mountain, but Lucent's new DSL technology "can do what Copper Mountain can do as well."

Additionally, Lucent launched a partner program to ease interoperability between its technology and that of a set of start-ups specializing in voice "gateways" for DSL-based systems. Included in the program are upstarts such as Jetstream Communications, CopperCom, and Tollbridge Technologies, among others. Analysts believe Lucent, given its roots in voice technology, may enter this market in the near future as well.

Lucent not alone
But Lucent isn't the only one looking to high-speed Net access technologies for a boost.

In light of Lucent's latest foray, European telecommunications equipment giant Alcatel was quick to claim leadership in the DSL market, noting it has shipped equipment that supports 350,000 DSL lines in the first half of this year, according to market researchers.

Alcatel has made inroads in the U.S. DSL market by targeting regional phone companies looking for a way to get into the high-speed Net access sweepstakes.

"The more big players get into the game, the more credibility it lends to our strategy," said Jay Fausch, senior director of marketing and business development at Alcatel. "We're still in an infancy stage here, we're nowhere near mass market."

Data giant Cisco launched a second-generation set of DSL-based equipment in June. It has recently won contracts with Bell Atlantic's data solutions group, Zyan Communications, DSLnetworks, and Texas Networking.

Cisco executives believe the market will inevitably center around larger firms that customers are used to working with--a typical evolution for the networking industry largely due to companies like Cisco that acquire whatever technology they do not have in-house.

"A mature product wins," said Tim McShane, a director of product management at Cisco.