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Nortel back in the broadband access game

Three years after Nortel Networks exited the market for broadband access equipment, the telecommunications maker is looking to get back in.

Three years after Nortel Networks exited the market for broadband access equipment, the telecommunications maker is looking to get back in.

On Tuesday, the company announced that it had entered into reseller agreements with three independent companies to address the market, including Calix Networks, based in Petaluma, Calif.; ECI Telecom, headquartered in Petah Tikva, Israel; and Keymile, based in Vienna, Austria.

Nortel discontinued its broadband access products in 2001. Some of these assets, such as its digital loop carrier business, were sold to Zhone Technologies. Other parts of the business were simply retired, including gear Nortel bought in 2000 from Promatory Communications for $778 million in stock.

Nortel's strategy shift signals a change in the overall broadband equipment market. Several companies, including Nortel and Cisco Systems, left this area a few years ago, because the products became commoditized, resulting in low profit margins, according to Matt Davis, an analyst at The Yankee Group. These products focused on simply connecting customers to the network.

As carriers look to enable new services like VoIP (voice over Internet Protocol), video on demand, high-definition television, videoconferencing and other rich multimedia applications, they need new gear, said Walt Megura, vice president and general manager of Nortel's broadband networks. This means that equipment providers need to offer features that include higher bandwidth, better quality of service and more flexibility in terms of the infrastructure used to deliver the services.

"Broadband service providers are facing more intense competition now than they were back in 2001," Megura said. "As a result, they need new services based on new infrastructure."

Nortel provides pieces of this new broadband infrastructure, but it lacks the access portion. So it has turned to Calix, ECI and Keymile to round out its offering. Calix makes a multiservice broadband loop carrier, which provides voice, data and video services over fiber and copper access infrastructure. Carriers can use these devices to migrate their telephone networks from legacy circuit technology to new packet-based technology.

While Calix's product is focused on the North American market, Keymile offers a product similar to Calix's but is geared toward European and Asian carriers. ECI makes "fiber to the home," digital subscriber line (DSL) aggregation and optical line termination equipment. The company is already working with Nortel to supply DSL equipment for Telecommunications Services of Trinidad and Tobago and Cable & Wireless Cayman Islands.

Analysts think Nortel's move is smart. Alcatel currently owns roughly 35 percent to 40 percent of the worldwide broadband access market, according to Davis. But carriers are looking for a second supplier. AFC has been the main alternative, with gear it recently acquired from Marconi. But Davis questions why Nortel has decided to partner with these companies rather than acquire the technology.

"I think this is a half-way strategy for them," Davis said. "They should be in acquisition mode."

Megura wouldn't comment specifically on why the company decided to partner rather than acquire.

"We felt this was the best way to meet the market on a global scale," Megura said. "If you look at the relationships, they represent different products in different parts of the world. Calix focuses on North America, and Keymile addresses Asia and Europe."

Although Nortel has only established reseller arrangements with these companies so far, it could still acquire one or all of them.

"Anytime a company the size of Nortel enters into a strategic relationship, the opportunity for an acquisition is pretty high," Davis said.