May 23, 2005 12:00 AM,

VENDORS ACCELERATE EFFORTS TO ACQUIRE IPTV MARKET SHARE

By Vince Vittore

The scramble to get into the telco IP video market — or IPTV in the current parlance — gained steam last week as ECI Telecom acquired Laurel Networks. Almost immediately after the news broke, Hammerhead Systems moved up the announcement of a new suite of Ethernet features on its aggregation platform geared toward the IPTV market.

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Separately, CoSine Communications said that it has canceled its planned merger with headend vendor Tut Systems after it become clear that it would not receive shareholder approval.

The ECI/Laurel agreement, which has ECI paying Laurel shareholders $88 million in cash, brings together ECI's HiFOCuS multiservice access gateway with Laurel's IP/MPLS multiservice edge router line. The deal takes on greater significance in the IPTV world given Laurel's recent introduction of two new line cards for its ST200 router geared specifically at carrier video deployments.

Steve Vogelsang, vice president of marketing and founder of Laurel, said the new product was announced in part knowing that the ECI merger was coming.

“There were really two areas of the network that needed to be addressed to deliver video,” he said. “That's the access component as well as the B-RAS. With ECI, we're in a stronger position to address that because we can address both sides.”

The merger also has very little geographic overlap. ECI's gear is currently selling well with European and Asian carriers but has yet to break into the U.S. market in a significant way. Laurel, by contrast, sees its strength as being in the North American market, though Vogelsang pointed out that the company has a few customers in Asia and Europe. Initially, though, the companies will likely take their blended offering to Tier 2 and 3 U.S. players along with ECI's traditional service provider base.

“We do see an opportunity with Tier 1 U.S. service providers, but we don't think they're short-term opportunity,” said Dror Nahumi, corporate vice president of strategy and business development for ECI.

Hammerhead, meanwhile, launched a suite of Ethernet features for its HSX 6000 Layer 2.5 Aggregation Platform aimed at business-class Ethernet, which it has previously targeted, but now Hammerhead is adding IPTV applications. Hammerhead sees the bandwidth requirements at the aggregation layer increasing almost exponentially as carriers embark on IPTV service projects.

“There's huge non-linearity on the access speeds,” said Houman Modarres, director of product management for Hammerhead, pointing out that the company's platform already has a capacity of 120 Gb/s. “It's really just the cost and complexity and availability of 10 Gig network processors.”

Modarres said the company, which has a sales, distribution and development partnership with Fujitsu for North America, is also exploring other partnership possibilities.

“We're certainly open to new avenues that exist,” he said. “As we work closer with service providers on applications, we're looking at a lot of opportunities.”

All of this is happening on a backdrop of DSL port shipments that are either reaching new levels or flattening, depending on whose analysis you believe. According to broadbandtrends.com, global DSLAM port shipments in the first quarter were more than 15 million, a 6% jump from the fourth quarter of 2004 (see chart). Dittberner Associates, which doesn't include such platforms as broadband loop carriers or next-gen digital loop carriers in its numbers, put total port shipments at 12.57 million, a mere 0.28% increase over Q4.

In-Stat analyst Henry Goldberg is predicting DSLAM revenues to remain flat, ranging from $3.1 billion to $3.3 billion over the next several years. The discrepancy points to some of the confusion in the market and the various network architectures that can be used to provide video, said Teresa Mastrangelo, principal analyst at broadbandtrends.com.

“It gets a little messy in trying to decide whom to include,” she said.