A marriage made in broadband heaven

ADC Telecommunications' acquisition of PairGain Technologies last week should bolster ADC's position in the DSL market by providing current and potential carrier customers a fatter DSL portfolio.

"This was a significant step toward our broadband, multiservice strategy," said Bill Cadogan, chairman and CEO of ADC. With PairGain, ADC can supply DSL systems to a majority of the telecom market. "Customers want solutions so they can win and retain their customers," he said.

Although ADC already is a strong player in broadband access, the acquisition adds PairGain's next generation ATM-based DSL access multiplexer (DSLAM) product, the Avidia platform. The platform is a competitive complement to ADC's Cellworx system, according to ADC.

In addition to serving a surging DSL market, the companies will benefit from combined operating synergies, said Mike Pascoe, president and CEO of PairGain. The blend of both companies' DSL products creates a complete offering in terms of local loop access, transport and network management products, based on high bit-rate DSL (HDSL), HDSL2, asymmetrical DSL and symmetrical DSL technologies.

But ultimately, the PairGain deal will strengthen ADC's position as a supplier in the overall broadband access market. By gaining PairGain's experience of delivering broadband multiservice communications over DSL, ADC can expand upon what it is calling a triple-play package, or an all-inclusive option for carriers. In effect, ADC is becoming more than a network equipment provider by offering software and integration services to broadband service providers as well. Analysts generally applauded the deal.

"A carrier now can turn to the newly formed ADC to address [a majority] of its deployment needs," said Ron Westfall, senior analyst with Current Analysis. "With the next generation DSLAM product, carriers can deploy multiple flavors of DSL to multiple platforms, with quality of service assurance backing up the services."

Studies found that 300,000 ADSL connections were deployed in 1999 and 2.5 million are expected by the end of 2000. Considering these numbers, the acquisition could not have come at a better time, Cadogan said.

The Yankee Group foresees the DSLAM market growing at an annual rate of 47% from 1999 to 2003, with high-speed communications connections to businesses - such as HDSL, T-3, frame relay and optical lines - growing at an annual rate of more than 30%.

But ADC has its sights set on more than just domestic growth. The combined company should be able to expand its reach into Canada and pursue more overseas opportunities.

"By combining forces and gaining a more critical mass, we could become a more formidable player in the global markets," he said.

When considering other potential acquisitions for expanding its already booming broadband strategy, Cadogan said ADC may make investments in optics, software or management tools that manage broadband and IP-based technology.

There are no immediate plans to consolidate the companies into a single facility. Pascoe will become CEO for the combined DSL business when the merger is finalized during ADC's third fiscal quarter, which ends July 31.