LAN vendor completes cable network with modem buyout

Nov. 1, 1996

LAN vendor completes cable network with modem buyout


A $2.1 billion data-networking organization, Bay Networks Inc., of Santa Clara, CA, has purchased LANcity Corp., Andover, MA, for $59 million and made it a division of the company`s Internet and Telecom Business Unit (itbu) in Billerica, MA.

Infusion of Bay Networks` 1600-person sales and marketing organization dramatically augments LANcity`s 70-person staff. Despite its small size, LANcity leads in cable modem sales, with 31,000 units installed throughout the United States. This installed base makes Bay Networks the "only end-to-end equipment supplier to the cable-TV operator marketplace," according to Bruce Sachs, executive vice president of Bay Networks` itbu.

LANcity founder Rouzbeh Yassini says, "We needed a commitment from a major networking company to provide end-to-end high-speed broadband communications. Bay is a networking giant that can supply the infrastructure of sales and service we need." Yassini has been named division vice president and general manager of the Cable Access Div. of the itbu, reporting to Sachs. He does not see any downside to the acquisition: "The merger is based on industry need, and there is perfect chemistry between the two organizations."

LANcity`s customer base includes cable-TV providers Continental Cablevision, Cox Cable, Jones Intercable, TCI Internet Services for @Home and Time Warner.

Cable-TV operators who know LANcity`s products applaud the move. David Fellows, senior vice president for engineering of Continental Cablevision Inc., notes, "No matter how much you like LANcity, you have to realize it is a small company...[and] in the back of your mind, you`re always wondering if it`s big enough to survive." Continental recently ordered 50,000 LANcity cable modems for its Boston area and Jacksonville, FL, systems.

Analysts insights

Joel Jakubson, vice president of Ryan Hankin Kent Inc., of San Francisco, explains, "This move is the latest in a series of relationships between LAN [local-area network] hardware vendors and cable modem vendors. Previously, Cisco invested in Terayon, and 3Com invested in COM21. From the LAN hardware vendors` perspective, eventual standardization of cable modem interfaces will lead to the integration of the cable modem headend router into the large, general-purpose routers that these vendors provide.

"From the cable modem vendors` perspective, this provides the needed capital to develop the next generation of cable modems [that will] conform to industry interoperability agreements that are being worked out. This investment is needed, for although cable modem shipments will begin in volume this year, non-interoperable products have only a limited market potential, and sales will not be enough to finance further development for many of the industry`s smaller players."

Andy Paff, president of Integrated Technologies, Englewood, CO, says the merger "is a logical combination of router technology and residential transport technology. It helps both companies in the area of HFC [hybrid fiber/coaxial-cable] data communications, and I think the industry will always welcome strong players in that arena with the kind of core capabilities that [Bay Networks and LANcity] represent."

Ronald O. Brown, a communications consultant in Melrose, MA, observes, "Acquisition [of LANcity] by a major data communications vendor instantly legitimizes the cable-TV industry as a carrier of data communications traffic. The acquisition [means] Bay Networks sees cable-TV as a growth market in the future, and that corporations will come to rely on cable-TV car riers for an ever-growing percentage of enterprise networks."

Patti Reali, a senior convergence industry analyst with Datapro Research in Delran, NJ, says this acquisition was not the first effort LANcity made to leverage its leadership in the cable modem industry. "Earlier, I think they were looking to partner with another company, but that did not work out. The only downside I see to this merger is that LANcity might be swallowed up by Bay Networks."

Reali cautions that lack of consumer confidence in cable-TV operators still remains an issue: "Do you trust your cable-TV guy to open your PC and provide access to high-speed data networks and the Internet?" In fairness, she also points out that cable-TV operators are developing new business units and training personnel to address data communications issues.

John Celanto, president of Skyline Marketing Services in Owings Mills, MD, thinks Bay Networks is acquiring an "end-to-end" solution with LANcity. "Subscribers are using cable modems routed by some type of Bay Networks device. Bay is venturing into a new arena for them. The acquisition calls for a revamped marketing thrust."

James Cuddihy, vice president of engineering at Kane Reese Associates in Edison, NJ, believes that as long as LANcity maintains its entrepreneurial spirit within the Bay Networks organization, the company will do well. "Its cable modem products are well-known in the industry," Cuddihy says.

Cable modem growth

Dataquest, a market research firm in San Jose, cites that 59 million households in the United States currently subscribe to cable, and that cable modem deployments are predicted to grow from 25,000 units in 1996 to 1.77 million units in the year 2000.

Paul Kagan Associates, a Carmel, CA-based market research firm, sees an even larger deployment, with cable modems reaching two million units by 1998. John Mansell, an analyst at Paul Kagan, sees the LANcity acquisition as good for the industry and also for LANcity. "Anytime a small entrepreneurial company is taken over by a larger organization, it redounds to the benefit of the smaller organization by giving [it] greater access to capital and human resources."

Bay Networks and LANcity are planning to facilitate this anticipated large-scale deployment by providing cable companies with cable modems, network-backbone connectivity offerings and network-management applications.

According to Paul Severino, chairman of the board of Bay Networks, "This merger... greatly simplifies deployment and support issues for cable-TV service providers as they launch cable modems within the marketplace."

Bay Networks` Sachs said the LANcity trade name will survive because it is well-known in the industry. Bay Networks has been a partner with LANcity since 1995 in providing routing equipment at the headend in several cable trials. The two companies have "products and technologies required to deploy a total system, allowing them to tightly integrate, drive costs down and provide new features and services," says Sachs. q

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