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Future Networks Deal Gets Tellabs Ready for IP

Tellabs Inc. last week inked a deal to absorb closely held cable-modem vendor Future Networks Inc. for $181 million, a move that essentially fleshes out Tellabs' voice-over-Internet protocol product portfolio and prepares it to become a stronger PacketCable and Data Over Cable Service Interface Specification player.

Tellabs said the purchase solidifies its position in the cable-data and IP-telephony markets. Specifically, the company said it now has what it needs to give cable operators a migration path from circuit-switched telephony to a voice-and-data play based on DOCSIS 1.1/PacketCable infrastructure.

The deal, which will send about 50 Future Networks employees to Tellabs, is expected to close next month, the company said.

In Alpharetta, Ga.-based Future Networks, Tellabs gets its hands on a line of DOCSIS 1.0-certified and EuroDOCSIS-based cable modems.

Future Networks has also submitted two models-the "110D" and "110E," which are based on the more advanced VoIP-enhanced DOCSIS 1.1 standard-to Cable Television Laboratories Inc. for certification testing. Those products are designed to integrate voice and data within the same box.

This won't mark the first time Tellabs has tried to add cable modems to its portfolio. In December 1997, the company revealed plans for a proprietary cable-modem card to accompany its line of residential cable-telephony gear. But those plans didn't get very far in terms of cable-operator deployments.

This time out, the more coveted item for Tellabs could be Future Networks' set of "Embedded Multi-Media Adapters," also known as Broadband Telecommunications Interface (BTI) devices. That gear is currently undergoing trials with undisclosed cable operators, the company said.

This deal "is all about the BTI," said Kinetic Strategies president and broadband analyst Michael Harris. Future Networks' BTI design, he added, completes the cable-IP puzzle for Tellabs and puts the company in on par with such rivals as ADC Telecommunications Inc.

"Now Tellabs has an actual end-to-end cable VoIP offering," Harris said.

The other piece of Tellabs' puzzle was put in place late last year, when the company struck an alliance with routing manufacturer Riverstone Networks Inc. In that deal, the companies agreed to marry Tellabs' "CABLESPAN 2300" universal telephony-distribution system and "MartisDXX" managed-access and transport network system with Riverstone's family of high-speed edge routers. The resulting product is a "carrier-class" cable-modem-termination-system called the "CABLESPAN 2700."

The 2700 is available at present and Tellabs has received orders for it, said J. Thomas Gruenwald, vice president and general manager of the company's access systems group. He declined to name those customers.

Competitively, it was important for Tellabs to snap up Future Networks because the world is gearing up for IP-and will make that move with or without Tellabs' help.

Tellabs' existing cable-telephony system, a circuit-switched product, currently handles more than 1.3 million lines in North America, South America, Asia and Europe, the company said. AT&T Broadband, United Pan-Europe Communications N.V. and RCN Corp. are among Tellabs' circuit-switched customers.

"Our DOCSIS-based products will be marketed globally," Gruenwald said. The company also will seek reseller agreements with its competitors, he noted.

Even though Future Networks brings Tellabs a host of DOCSIS modems, don't expect the company to enter the relatively low-margin retail side of the business.

"We'll sell cable modems to customers who buy our CMTS, as part of a whole solution," said Gruenwald, who added that Tellabs won't explore the retail realm "in a big way."