Moving to further lessen its reliance on the cable-plant
business, C-COR Electronics Inc. is acquiring broadband Internet-services provider Convergence.com Corp. for about $46 billion in
stock.
The 45-year-old maker of amplifiers, nodes and other
elements of two-way, hybrid fiber-coaxial plant will also change its name to C-COR.net Corp., reflecting its expanded focus on
supporting the deployment, operation and maintenance of broadband high-speed-data
services, in addition to its trademark manufacturing.
C-COR plans to integrate Convergence.com -- which provides
turnkey Internet-access systems to small and midsized cable operators, as well as
outsourced network-operations-center and help-desk services for end-users and technicians
-- into its Broadband Management Services subsidiary.
Convergence.com will remain based in Atlanta, which also is
home to its NOC.
"This gives us a broadened business base for the full
life cycle of the network, from build and upgrade to monitoring and maintenance,"
said David Woodle, president of State College, Pa.-based C-COR.
That broader base could become more important in the next
several years, as the pace of major cable upgrades and rebuilds slows down and operators
deploying Internet access, telephony and interactive programming create a heightened need
for network-related services.
Paul Kagan Associates Inc. estimated that industrywide
construction spending -- including upgrades, rebuilds and purchases of equipment such as
cable modems -- will rise to $10.2 billion this year from $7.7 billion in 1998.
But operators accounting for 67 percent of the market are
winding down their movement from 550-megahertz plant to 750-MHz, representing a
significant shift for hardware makers that are not diversified in growth areas such as
set-tops, modems and services.
"The end of the huge bandwidth upgrades seems to be
near," Kagan senior analyst Leslie Ellis said. "It's really smart of C-COR to
recognize this now and to start moving into the areas of services and network
management."
An early player in two-way HFC plant, C-COR announced a new
strategic plan last fall intended to expand its product base, to create more business in
facilitating new cable applications such as Internet access and to broaden its reach into
network design and management, training and field services.
C-COR invested $5 million in Convergence.com this past
December, becoming the exclusive North American reseller of that company's products and
services.
Once merged, the companies will de-emphasize
Convergence.com's turnkey-networks business, which accounts for about 6,000 subscribers so
far.
That business -- which, by some estimates, represents about
40 million homes passed -- has become crowded with deep-pocketed competitors including
High Speed Access Corp., SoftNet Systems Inc.'s ISP Channel and @Home Network's newly
formed @Home Solutions.
"The market's just not big enough for that many
vendors, and this is the first shoe to drop," Ellis said.
Furthermore, Convergence.com has been getting market
feedback that smaller operators preferred to own data networks and their subscribers,
instead of sharing them and the revenue they generate with a turnkey provider.
"One operator recently said to me that he's beginning
to see that 50 percent of revenues will come from the new services, and why should they
want to give that up?" asked David Ames, Convergence.com's president and cofounder.
"If a company can get him into the business and
provide help-desk monitoring and support, that's what they want for the future," he
added.
Ames also pointed to the industry's rapid consolidation,
which supports C-COR's plans to shift Convergence.com's focus to the top 10 MSOs that are
buying up second- and third-tier operators.
With its strategic plan launched just last fall, C-COR only
realized about 2 percent to 3 percent of its overall revenue from services in 1998,
spokeswoman Sally Thiel said.
So far this year, services have already accounted for about
5 percent of total revenue, and that figure could be in the high single-digits as a
proportion of total sales by the end of this year.
"The ultimate goal is to be about 50-50," Thiel
said, adding that C-COR would likely make further acquisitions that support its strategy.
Under the merger deal, expected to close in June, C-COR
will pay about 1.45 million common shares to Convergence.com shareholders, and it will
convert warrants to buy Convergence.com stock into warrants for 370,000 C-COR shares.
Ames will become a senior executive of C-COR.net, and
cofounder Terry Wright will be named its chief technology officer.
