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Nortel to buy Aptis for switches

The telephone network equipment company will acquire Aptis, a data networking start-up, for approximately $290 million in Nortel common stock and cash.

Telephone network equipment company Nortel (Northern Telecom) (NT) will acquire Aptis Communications, a data networking start-up, for approximately $290 million in Nortel common stock and cash.

Aptis develops access switches used by telephone carriers and ISPs to integrate voice and data traffic on Internet Protocol networks, to create virtual private networks (VPNs), and to handle modem traffic.

"Without a carrier-class remote access device like Aptis's, Nortel would be drowning," Maribel Lopez, a Forrester Research analyst, said. "Nortel doesn't have one, and the Aptis acquisition gives them a prod they can use to compete against Cisco."

To offer Internet access and voice-over-IP networks, carriers need a piece of equipment in their central offices to accept incoming transmissions.

Aptis's product, CVX 1800, is now in beta testing and due to ship next month. It currently can handle 6,000 simultaneous modem connections at an ISP or telephone carrier's central office. Nortel plans to add DSL capabilities and SONET connections, as well as network management.

The product will be integrated into Nortel's Internet Thruway and Multi-Megabit network solutions, already in service with carriers and ISPs across the United States.

The acquisition continues telephone network equipment vendors' rush, including that of rival Lucent, to send data and voice traffic over the same networks. From the data networking side, Cisco Systems, Ascend, Bay Networks, and 3Com have announced or delivered similar products.

"We see a move to an IP-based network," said Nortel's Glenn Falcao, vice president and general manager of Nortel Public Data Networks. "It has to be as reliable and scalable and robust and secure as the existing [voice] network. Nortel is absolutely focused on being a leader in making high-volume, high-reliability data networks as reliable as the voice networks."

Paul Gustafson, Aptis CEO, said the CVX 1800 was designed from the start for major ISPs and telephone carriers, differentiating the company from competitors whom he says focused first on other market segments.

"We have delivered by far the best product for this space, now combined with one of the strongest market players in the carrier space," Gustafson said.

Nortel is pushing products that let carriers and ISPs deliver data and voice traffic over the same Internet Protocol networks.

The CVX 1800 is currently in trials with major ISPs GTE Internetworking, formerly BBN Planet, and UUNet, now part of long distance giant WorldCom.

Aptis, founded in January 1997 and now comprised of 50 employees located in Boston, will continue to operate as a separate business. Gustafson will remain president of Aptis and become a Nortel vice president and general manager. Toronto-based Nortel had 1997 revenues of $15.5 billion and has about 73,000 employees.

The sale represents a huge return for Aptis venture capital backers, who include Charles River Ventures, Bessemer Venture Partners, Morgenthaler Ventures, and JAFCO. In January, Aptis announced $10.5 million in second-round funding, bringing total venture investment to $16 million for a company sold for $290 million.