Motorola, GI combo takes aim at HFC voice

Besides combining one of the largest cable television equipment vendors with a traditional wireless powerhouse, the General Instrument and Motorola merger will create a vendor that should play a big role in cable operators' attempts to get into the competitive residential voice market.

Under terms of the deal, each share of GI would be exchanged for 0.575 shares of Motorola, making the deal worth about $11 billion. GI's largest shareholder, AT&T subsidiary Liberty Media Group, owns about 20% and has agreed to vote all its outstanding shares in favor of the merger.

Edward Breen, chairman and CEO of GI, will lead a new Motorola business unit that will include Motorola's multimedia group, which encompasses the company's cable modem and hybrid fiber/coaxial (HFC)-based IP telephony systems.

"This is the most strategic move our company has ever made," Breen said.

The merger gives GI a strong brand name to use when cable modems and set-top boxes begin appearing on retail shelves. Simultaneously, the company will be able to approach its customers with a significantly larger product line, Breen said.

The deal rounds out Motorola's broadband portfolio and opens up significant opportunities. "What was clear as these things began to converge, [was that] you want to have all the areas covered," said Dick Day, corporate vice president and general manager of the markets division for the multimedia group for Motorola. "One piece we were not strong in was the video space."

Though many details still need to be sorted out, it's clear that the combined entity will focus much of its efforts on furthering the progression of IP services over cable operators' HFC network. The companies also are already hinting that they will explore the PCS-over-cable market - at least if they listen to their biggest customer.

"This HFC architecture is wonderfully robust, but it has to be managed to the family needs, which are diverse," said Leo Hindery, president of broadband and Internet services for AT&T. "It's very clear that wireless access into the HFC architecture is one of the wonderful opportunities."

In the coming term, the companies will focus much of their efforts on IP telephony, a technology both companies have introduced in different forms.

Earlier this year, GI began integrating IP telephony capabilities into its DCT-5000+ digital set-top box. Motorola's vision entails IP telephony that is delivered through a household gateway that uses the CyberSurfr cable modem as its base.

"IP telephony is absolutely going to become a reality," Day said.

The one commonality between the two approaches is separate relationships with Cisco Systems, which likely will remain in place. "There are going to be multiple relationships," said Bruce Stone, senior vice president and general manager of the multimedia group for Motorola. He added that both companies also have worked with Lucent Technologies to combine core switching with cable telephony access products. "We'll sort them out as we roll forward."

In a separate announcement the same day as the merger was unveiled, Cisco said it would acquire Copenhagen-based Cocom A/S. The deal gives Cisco its first access products, including set-top boxes based on the Digital Video Broadcasting standard.

"I think we're keeping pace with a fundamental change in the cable industry, from just video to full-fledged communications providers," said Paul Bosco, vice president and general manager of cable product solutions at Cisco. "We're combining our capability on the packet telephony side with the data side and now adding the set-top box side."

Bosco anticipates the deal will strengthen Cisco's position in the Motorola/GI merger, adding that of the 11 certified as DOCSIS-compatible by CableLabs, eight are Cisco partners. "We're actually very active on the partnership side. We're not going to try to be a proprietary player."