Nortel Networks has announced plans to buy digital subscriber line (DSL) switch startup Promatory Communications in a stock swap deal worth $778 million.
Steve Schilling, Nortel's president of access networks, said the acquisition will strengthen the company's expanding broadband access portfolio, which includes the Universal Edge and 1Mbps modem products, as well as enhance its ability to offer improved voice over DSL service.
"The next generation solution to deliver multiple new network services over DSL loop connections will accelerate global DSL technology this year," Schilling said. "Nortel is seeing very strong demand for this technology."
Schilling also said that Nortel has an existing OEM relationship with Promatory and so "this will be a smooth integration." Nortel believed Promatory was the most attractive of the independent DSLAM (DSL access multiplexer) companies because of its voice technology. "It lets a carrier guarantee the quality of service," explained Schilling.
Under the terms of the agreement, Nortel will purchase Promatory for $705 million worth of Nortel common stock. Up to an additional $73 million in common shares will be payable to Promatory if it achieves certain business performance objectives in 2000. Promatory's 100 employees will move to Nortel to help it combine Promatory's DSLAM product with the networking giant's two year old DSL modem.
Analysts forecast that the entire DSL market is set to take off with projections of seven million DSL lines in services by 2002 compared with fewer than one million today. By 2003 the market is expected to rise to $4 billion, almost 40 times more than last year's estimated total of $103 million.
Like Cisco Systems, Nortel has been on a buying spree in recent months and has snapped up fibre optic equipment maker Qtera for $3.25 billion and software maker Clarify for $2.1 billion.
Nortel executives expect the deal to close in the first quarter of 2000.
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