Telco systems' M&A moves

When Israeli firm BATM Advanced Communications acquired Telco Systems in 2000, it purported to marry its own strong products with Telco's strong sales channels, especially in the U.S. Lately, however, BATM has been making acquisitions to beef up Telco's product portfolio, buying two equipment vendors in the past six months and bidding on a third. But it may be the sales channel of one of those acquisitions that helps most of all.

In a world of mega-vendors, Telco is known for selling “knick-knacks,” said Ray Mota, Synergy Research analyst. The modest market shares yielded by its largely undifferentiated, low-end access gear usually relegate Telco to the anonymous “others” wedge of market share pie charts. In recent years, it has gradually added more and more IP-based products to its portfolio.

In June, Telco bought carrier Ethernet customer premises equipment (CPE) vendor Metrobility Optical Systems for nearly $7 million, adding MPLS intelligence to its CPE portfolio. In September, Telco acquired IP DSLAM vendor Critical Telecom for an unknown sum.

To become an end-to-end access player, Telco needs a more scalable edge product, Mota said. The company almost got one by bidding on the assets of bankrupt White Rock Networks, eyeing in particular the IP edge aggregation gear White Rock got in its 2005 acquisition of Seranoa Networks. That gear would have been a step up from Telco's current edge offering, Mota said. But when Turin offered to pay $3.4 million for White Rock, the price tag became too high, said Zvi Marom, BATM chief executive. “It was too much hassle.”

Instead, Telco might consider buying Atrica, Mota said.

One Critical Telecom channel in particular could open doors for Telco. Ericsson has been selling Critical's Gemini remote DSLAM since early 2005. In an IPTV deployment, that remote product is an important complement to Ericsson's own more centralized gear. “Ericsson's going to need [Gemini] to do more localized management as well as video-on-demand services,” Mota said.

As for whether Telco will make any more acquisitions in the near term, Marom said, “We have the funds.”