Why newcomer Enablence targets hostile access market

As Tellabs curbs investment in access products and another access vendor, Zhone Technologies, reports ballooning losses, the access networking equipment market appears hostile to even seasoned players. But one little-known newcomer is choosing now to make inroads into the access space, making three acquisitions this year: Enablence Technologies.

“There are very good reasons why [access equipment vendors] are finding it challenging to do what they’re doing,” said Arvind Chhatbar , Enablence’s chief executive officer. “It’s because they’ve been in there for a while with some old solutions that are hard to get rid of because of the investments that have gone into them. I think the climate is just becoming ripe for a player like ours who is fresh and brand new. As an emerging company, we don’t have the legacy issues that existing companies have had which has made their operating costs difficult to manage.”

Part of Enablence’s strategy has been to attack the typical economics of access networks through vertical integration, starting at the chip level and acquiring equipment vendors.

Formed in late 2003, Canada’s Enablence emerged from stealth mode and went public in 2006, making a string of acquisitions. Last year the company bought Albis Optoelectronics – a Swiss photodiode supplier serving the fiber-to-the-premises (FTTP) space -- for about $7 million in cash and stock. Early this year it purchased ANDevices, a Silicon Valley photonic component vendor, for $36 million in cash and stock. This spring, it acquired FTTP equipment vendor Wave7 Optics for a mix of cash and stock approaching $14 million. And this month it acquired DSLAM vendor Pannaway Networks for nearly 26 million shares and $3 million in debt.

Enablence’s plan in acquiring Wave7 was to replace the latter’s transceivers – an especially costly part of FTTP -- with the planar lightwave circuit (PLC)-based gear Enablence obtained from ANDevices. PLCs, which guide photons through wafer structures, have been used widely in Asian FTTP markets, and Wave7 execs say they will dramatically aid the cost structure of Wave7 gear. It’s also not hard to replace existing components with PLCs, Chhatbar said. “Tranceivers are designed to be pin-to-pin matches with the existing optical board. They’re plug-in replacements.”