Nortel re-enters broadband access world

Nearly five years after exiting the broadband access market, Nortel is attempting to re-engage in this hot area through a joint venture with Chinese company Huawei Technologies.

Huawei is the No. 2 vendor in DSL behind Alcatel, according to market researcher Ovum. The market is picking up steam as carriers build out next-generation fiber and fiber and copper infrastructures to offer IP video and higher-speed broadband Internet access services to homes and businesses.

In the United States, carriers such as AT&T, BellSouth, Qwest and Verizon are spending billions of dollars to move fiber closer to the home or into the home. Those that choose a closer-to-the-home approach plan to deploy next-generation DSL technologies over copper to deliver to customers what Nortel calls ultra-broadband speeds of tens of megabits.

Until now, Nortel has been left out of the action. The company exited the DSL market in mid-2001 amid a restructuring to stem the flow of red ink, after acquiring a presence by buying vendors Promatory Communications and Sonoma Systems in 2000.

Since that time, carriers have been issuing RFPs and awarding rich contracts to DSL and passive optical networking (PON) vendors for their IP video and next-generation broadband access buildouts (see this story on BellSouth and this column on Verizon). Meanwhile, Nortel underwent another wrenching restructuring and financial restatement as the result of an accounting scandal.

"Those equipment vendors which lack a credible large-scale access portfolio stand to miss out on a lot of revenue opportunities," says Ken Twist, an analyst at Ovum.

Nortel also entered into a broadband access arrangement with Calix in 2004, but that is focused on rural carriers. The company also is aligned with ECI Telecom for DSL in emerging markets, but analysts say these partnerships produce little.

"This [new joint venture] highlights the company's lack of exposure to the strongest area of telco spending, access networks," states Morgan Stanley analyst Brian Fitzgerald in a research note. Nortel and Huawei have entered into a memorandum of understanding; their intent is to establish a joint venture for developing ultra-broadband access products for global markets.

Huawei is a leading vendor of IP DSL access multiplexers (DSLAM), and Nortel says Gigabit PON (GPON) products and a "multiservice access node" also are in the pipeline.

"We've responded with [Huawei]" to the three Bell operating companies' GPON RFP, says Walt Megura, Nortel general manager of broadband networks. "Huawei has a leadership position and scale, which are very attractive attributes."

The joint venture will be majority-owned by Nortel and headquartered in Ottawa. It will combine Huawei's broadband access portfolio with Nortel's voice and broadband network technologies to create a product line designed to converge voice, video, data and wireless services for business and residential customers onto a common IP platform that supports copper, fiber and fixed wireless networks. The joint venture will enhance Huawei's broadband access line.