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Nortel nabs high-speed gear

The telecommunications equipment maker purchases start-up Promatory Communications, a maker of high-speed Internet access equipment, for about $778 million in stock.

Nortel Networks has purchased start-up Promatory Communications, a maker of high-speed Internet access equipment, for about $778 million in stock.

Promatory, a 100-employee firm based in Fremont, Calif., builds digital subscriber line (DSL)-based equipment that Internet service providers (ISP) and telecommunications firms can use to offer high-speed Internet access to consumers and businesses.

Promatory's DSL equipment will allow fast Internet access to be offered over regular copper telephone wires. The move allows Nortel to compete with rival telecommunications equipment makers, such as Cisco Systems, Lucent Technologies and Alcatel, as well as niche providers like Redback Networks.

Nortel executives said Promatory's equipment will also integrate with its optical-based network systems--a key growth area for the company. Nortel in December spent $3.25 billion to purchase Qtera, which has developed a product that allows phone and data traffic to be sent across a fiber-optic network.

Nortel executives expect today's deal to close in the first quarter of 2000. The company will issue between 6.3 million and 9.4 million shares of stock. The exact number will be determined by the average price of Nortel's shares based on a specific period prior to the deal closing.

In addition to high-speed Net access, Promatory's DSL technology will allow consumers and businesses to transform one telephone connection into 12 to 16 separate phone lines. Promatory's chief executive Roger Dorf, who will now become a vice president at Nortel, says this allows each family member, for example, to have his or her own telephone number.

Promatory's technology fits well with Nortel's existing DSL products, according to analyst Shannon Pleasant of Cahners In-Stat Group.

Promatory's product is located on the "edge" of the network, where it connects customers to service providers. Promatory's device will sit in front of Nortel's existing Universal Edge equipment, which makes up the back-end of a DSL network, according to the companies.

"This is a great move for Nortel," she said. "The industry is moving to standards-based products, and building one themselves would have been too time-consuming."

Nortel executives expect today's deal to close in the first quarter of 2000. The company will issue between 6.3 million and 9.4 million shares of stock. The exact number will be determined by the average price of Nortel's shares based on a specific period prior to the deal closing.