Pannaway to pick up TelStrat access division

Pannaway Technologies said last week it will acquire the access division of TelStrat International. In doing so, the company has put itself in position to grow in tandem with Gigabit passive optical network technology, whenever that decides to happen.

TelStrat was the first company in North America to deliver 2.4 GPON-based fiber to the home from a broadband loop carrier platform. Pannaway, which had been developing its own GPON technology, wanted to accelerate that development and will acquire TelStrat's Inteleflex product line instead.

“We really want to get a foothold in this marketplace, and we know growing organically would take too long,” said Kevin Brown, vice president of marketing for Pannaway. “So this is a way for us to grow and protect the customers' investment by carrying on development of Inteleflex and cross-pollinating it with our own product line.”

From a product perspective it fits perfectly, said Vince Vittore, senior analyst for Yankee Group. He said Pannaway's tradition is in stackable solutions, which are appealing to Tier 3 providers, and its new MAGNM-20 platform aims squarely at the Tier 2 market. TelStrat fills the gap for providers that are in between.

“More important, it gives them a leg up on GPON,” Vittore said. “They bought themselves a pretty good market share in this market, and TelStrat has the operational experience in deploying these systems. That's what they bought — that expertise.”

The acquisition is expected to close by the end of this month and will grow Pannaway's customer base to more than 300 Tier 2 and Tier 3 service providers and municipalities.

“In a marketplace with about 800 ILECs, that's about 40% market share, and that's just below Calix, which is significant,” Brown said.

Jeff Heynen, directing analyst for broadband and IPTV for Infonetics Research, agreed it is significant; however, he said it's too early to worry about market share numbers in the access market, especially in regard to GPON because everyone is waiting for Verizon to pull the trigger and blow the numbers out of proportion. Currently GPON accounts for only 3% of the overall PON market, according to Infonetics Research.

“However, with the Tier 2 and Tier 3 arenas, it still helps to be able to say that as an organization you can not only acquire that many customers, but support them,” Heynen said.

Brown added that the acquisition helps Pannaway from a service perspective. “We also wanted to get more coverage out in the street with salespeople and techs,” he said. “It's pretty hard to serve rural customers without a lot of feet on the street. Now we'll be doubling our territory and be out there to help customers more often.”

Both companies' products are based on similar technology, including Broadcom chipsets, so the integration should be a smooth one, Brown said. Pannaway now will have three density levels of product: the high-capacity MAGNM-20 chassis, the medium-capacity Inteleflex chassis, and the stackable Broadband Access Switch family.

Bob Carroll, founder and CEO of TelStrat, has joined Pannaway's board of directors and will be an active member, according to Brown. Sid Schmid, formerly general manager of TelStrat's telecommunications division, will become Pannaway's executive vice president and will lead the integration efforts. All other employees associated with the access products will become Pannaway employees and remain at TelStrat's location in Plano, Texas.

Heynen said that it is hard to forecast the market for Tier 2 providers because they haven't been very decisive about their future plans yet.

“They haven't figured out what they want to do with video yet,” he said. “If they go with it, they will need some kind of next generation access platform, and the way things are going, it will likely be an IP- and Ethernet-based platform.”

PON WORLDWIDE SUBSCRIBERS, 2006

EPON	64%
BPON	33%
GPON	3%
Source: Infonetics Research