Acquisitions bolster Nortel, Cisco Internet optical-networking positions

Nortel Networks (Brampton, ON, Canada) and Cisco Systems Inc. (San Jose, CA) each extended their product lines with recent acquisitions. While Nortel's purchase of startup Qtera Corp. (Boca Raton, FL) for approximately $3.2 billion and Cisco's deal to buy the optical-systems business of Pirelli SpA (Milan, Italy) for approximately $2.15 billion addressed different technology areas, analysts hailed these actions as essential for both companies' long-term strategies to address optical Internet networks.

Qtera will bring ultra-long-haul (ULH) technology to Nortel's existing optical transport line. Qtera's technology, recently tested by Qwest and currently expected to take the form of multiplexing and amplification gear, promises to provide transport distances as long as 4000 km without electrical regeneration. Qwest expects the addition of equipment like Qtera's (the carrier is also evaluating systems from Corvis Corp.) will cut operating costs by as much as 70%, decrease the number of network regeneration points by as much as 90%, and reduce backbone provisioning cycles by 95%.

While Qtera and other companies working in the ULH area--such as Corvis, Ciena, and Sycamore Network--may appear to be attempting to one-up each other with how long they can transmit a signal without regeneration, analysts point out that Nortel will be able to use Qtera's technology to benefit networks with much shorter links. "ULH solutions also have the potential to remove OE [optical-to-electrical] regeneration on nearly any span in the network," points out Chris Nicoll, an analyst at Current Analysis (Herndon, VA). "Service termination still requires OE conversion, but mid-span regenerators could be eliminated entirely, particularly when the photonic crossconnects (such as the Lucent LambdaRouter) come to market in mid-2000."

The addition of Qtera conforms to Nortel's overall strategy in optical networking, according to Tom Valovic, an analyst at International Data Corp. "Nortel has recently placed special emphasis on their involvement in the optical-networking market," he explains. "This strategic commitment involves ramping up their overall investment and tripling their manufacturing capacity by the middle of next year. Nortel already has significant market strength and a leadership role in the 10-Gbit/sec optical market segment. [This] move builds on this strength and rounds out their technology portfolio nicely. Qtera's solution appears to be compatible with Nortel's Optera LH product line both in terms of bit rates and channel spacing."

Although ULH technology is certainly among the industry's hottest, Valovic sees Qtera's contribution as more significant to Nortel's longer-range future. "This is a technology acquisition, pure and simple and forward-looking at that," he says. "Significant deployment for these types of systems isn't expected for at least three to four years. There are no significant revenues or customer base to speak of here."

Another potentially interesting aspect involves Qtera's philosophy concerning network restoration. The company had set itself the goal of incorporating dense wavelength-division multiplexing (DWDM) and restoration capabilities into the same optical platform. "At Qtera, we favor the integration of such functionality into the DWDM equipment, and we use the optical interconnect type devices for wavelength provisioning, not for restoration," explained Fahri Diner, Qtera's president and CEO, in a previous interview with Lightwave. Diner will continue as president of the Qtera operations, reporting to Mike Unger, president of Nortel Networks' optical-networks business. "This enables you to get to a very scalable architecture," added Diner. "You do not want to force yourself to use a crossconnect that you have to scale on a port-by-port basis. Once the ports are completely used up, you can run into scalability restrictions."

Several companies--including Monterey Networks, which was purchased by Cisco, and Lightera Networks, acquired by Ciena--have developed wavelength switches designed to provide restoration capabilities at the network core. As mentioned previously, Lucent has announced its LambdaRouter all-optical switch, and startup companies such as Corvis and Sycamore have also introduced equipment to address optical restoration and transport. Nortel has remained quiet about its intentions in the area of core wavelength switching; it remains to be seen whether Qtera's direction influences Nortel's future offerings in this area.

Cisco's purchase of Pirelli's optical-systems business gives the company the link previously missing from its optical technology chain: DWDM. Placed in the context of its other recent acquisitions--Synchronous Optical Network (SONET) transport vendors Pipelinks and Cerent, as well as Monterey--Cisco feels it can now provide an end-to-end optical-networking solution for service providers.

Valovic agrees. "With this acquisition, Cisco has addressed head-on the major gap in their next-generation optical product strategy, i.e., the lack of a mainstream DWDM product. The move also creates a far more complete optical portfolio," he says. "Cisco is now far better positioned to compete against Lucent, Nortel, and Ciena in long-haul DWDM and also has gained the capability to begin significant integration efforts involving other product platforms such as the GSR 12000 router.

The move also has benefits for Pirelli, Valovic believes. These include access to Cisco's marketing savvy and development of a partnership with a company well positioned in the optical/router backbone market. This partnership includes a $100-million investment by Cisco in two Pirelli operations it didn't purchase, submarine optical-transmission systems and optical components.

Market research firm RHK Inc. (South San Francisco) thinks Cisco still has some ground to cover. Analysts at the firm believe Cisco has an interest in ULH technology, and may pursue closer ties with companies such as Corvis, in which Cisco already has a 10% stake. RHK notes that Pirelli's work in soliton transmission technology may prove useful to Cisco in this vein.