Broadband-equipment vendor ADC Telecommunications struck a deal to buy privately held Broadband Access Systems (BAS) for $2.25 billion in stock, paving a path for ADC to enter the cable-modem termination system (CMTS) and Internet-protocol markets with a full head of steam.
ADC currently supplies circuit-switched equipment to such companies as AT & T Broadband, overbuilder Seren Innovations Inc. and a number of international cable operators. This deal gives ADC an IP-telephony play.
"What's interesting is that while ADC is a strong access player, they are by no means an IP powerhouse," Kinetic Strategies Inc. president and broadband analyst Michael Harris said. "I imagine that ADC will try to use BAS to bring some of that to the party."
The acquisition could also prod other well-entrenched vendors to playLet's Make a Dealwith CMTS start-ups such as RiverDelta Networks Inc. and Cadant Inc.
The two companies will combine some sales and marketing support staff, said BAS vice president of marketing Mark Komanecky, but there are no plans to lay off any employees when the deal closes sometime before the end of the year. At that time, BAS will be folded into ADC's transport group, which sells access equipment to digital subscriber line, cable and wireless operators.
The BAS product line is focused firmly on the cable industry, but its IP expertise could be expanded to ADC's line of digital subscriber line and wireless platforms, ADC chairman, president and CEO William Cadogan said during a conference call with reporters and analysts.
BAS will also allow ADC to provide network operators with a migration strategy for future voice-over-IP lifeline services when circuit-switched voice services fade from the scene, Cadogan added.
BAS and ADC also plan to develop an end-to-end IP cable-telephony system that would compete with similar products being developed by Nortel Networks, Cisco Systems Inc. and Lucent Technologies, Komanecky said.
One item that will come to that party wrapped in a bow is BAS' flagship product, the "Cuda 1200 IP Access Platform," a carrier-class DOCSIS (Data Over Cable Service Interface Specification) 1.0-qualified CMTS. Earlier this year, BAS said it planned to submit its chassis to Cable Television Laboratories Inc. for the organization's initial DOCSIS 1.1 certification/qualification wave, set to launch Oct. 23.
The deal highlights the rising role of the CMTS in evolving cable architectures and shows just how badly ADC wanted to add BAS' wares to its broadband portfolio, Harris said.
"It's an incredibly powerful piece of real estate," he added. "It gives ADC a point of entry into the broadband cable IP space."
That move could prove to be extremely lucrative. The Strategis Group predicts that by 2005, 13 million homes will subscribe to cable telephony.
BAS has also launched a suite of products that work in concert with the Cuda-1200, including the "Cuda Provisioning Manager," "Cuda Protocol Analyzer" and the "Cuda View NMS," a network-management application. Last month, BAS also added Linux-based servers to its platform to boost system security, flexibility and eliminate the need for cable operators to install separate subscriber-management systems.
BAS will provide ADC with some sought-after IP expertise in the cable sphere, Cadogan said, and ADC will reciprocate by using its sales and marketing prowess and existing relationships with network operators to help BAS build a larger customer base.
In fact, the budding CMTS vendor, which was founded in 1998, said it was just starting to get some traction on the deployment front with broadband network operators, citing deals with Time Warner Cable, Adelphia Communications Corp., InterTECH, Tele-Media and Utilicom.
BAS CEO Dave Paolino, who will continue to lead the BAS team following the merger, said the Cuda-1200 is being tested and deployed by 60 to 70 cable systems, but declined to provide subscriber numbers.
Paolino noted that BAS has been in discussions with AT & T Broadband for at least 16 months. "It's an active situation" with AT & T Broadband, he said. "They're evaluating our platform, and I think they like what they see."
Other MSOs are also interested-if BAS' revenue projections hold water, that is. Though BAS is expected to generate only $5 million in revenue this year, Cadogan said he was confident that its market segment-buoyed by cable, DSL and wireless-will enable the company to earn $60 million in 2001 and $500 million in revenues by 2004-2005.
Industry analysts have speculated that CMTS start-ups such as BAS could become acquisition targets for more well-established broadband equipment vendors seeking an integrated equipment based on the DOCSIS 1.1 standard. RiverDelta Networks Inc. and Cadant Inc., two other CMTS vendors with 1.1 aspirations, have also been mentioned as possible acquisition candidates.
The ADC-BAS deal sets the real-world valuation benchmark for those burgeoning CMTS vendors.
"For both RiverDelta and Cadant, this [deal] should be incredibly uplifting," Harris said. "Instead of being threatened [by possible acquisition], I'm sure they're popping the champagne."
The amount of the deal "excites us," RiverDelta vice president of marketing Jeffrey Walker conceded, noting that the $2.25 billion ADC has put up for BAS might be on the low end of what his company would require from potential suitors.
"We have had offers," Walker said. "We're driving towards our IPO, but if we get an appropriate offer, we would certainly entertain that."
Meanwhile, a Cadant official said it was business as usual at the company's Lisle, Ill. headquarters, and declined to comment on whether the ADC-BAS agreement will affect current plans.
