World's access vendors struggle to gain foothold in U.S. market

ECI Telecom's recently announced partnership with Motorola is the latest attempt by overseas equipment vendors to penetrate the North American broadband access equipment market. But even some of the world's top access suppliers have found this space tough to crack, dominated as it is by the small and medium-sized vendors based here.

Most of the world's top suppliers of broadband access gear don't enjoy the same prominence in this country. Alcatel-Lucent, the leader of both the global and domestic access market, is an exception. Behind it, the world's top DSL suppliers are Ericsson, Huawei Technologies, Siemens and ZTE. But in the U.S., they're Adtran, Calix, Tellabs and Zhone Technologies. And the U.S. gang has dug in deeply in recent months. Calix doubled its revenue in the multiservice access space last year, and Occam Networks grew its revenue there nearly 80%. Even Adtran, which had a tough 2006, is now drawing a lot of attention from major and medium-sized carriers alike for its newest access gear.

Israel's ECI tried to break onto this scene before, partnering with Nortel Networks in 2003 and leaving that team in 2006 when it proved unsuccessful. Huawei took the same route in 2006, parting ways with Nortel months later. Analysts don't expect Huawei or ZTE to acquire their way into the U.S. broadband game anytime soon. But ECI and Ericsson are clearly zeroing in.

ECI's gear, popular with big names such as Deutsche Telekom and France Telecom, is a good choice to fill the IP DSLAM hole in Motorola's access business, analysts said. But it's less clear how effective Motorola will be at tapping the U.S. market for ECI. With recent acquisitions of DSL customer premises gear maker Netopia and video players Broadbus, Tut Systems and Vertasent (plus a deal with Amedia Networks for IP home gateways), Motorola has committed itself to broadband access. But it doesn't yet have market share in copper.

“The [Motorola/ECI] partnership looks to be a good combination in terms of technology and limited overlap,” said Erik Keith, senior analyst for Current Analysis. “But Motorola has no track record of success in North American DSL.”

Motorola has supplied a minority of Verizon's optical access needs, and the DSL business that came with its 2003 acquisition of NextLevel Communications has grown cold, analysts say, with no easy migration path to ECI gear.

“Every vendor I've talked to has attacked the NextLevel accounts,” said Teresa Mastrangelo, principal analyst for broadbandtrends.com. “There's been pretty good erosion there in the last twelve months. Qwest has already made the decision to replace NextLevel equipment in Phoenix and Denver. That Qwest business is history.”

ECI has said it will take 12 to 18 months for revenue from the Motorola partnership to ramp up. “It will take every bit of that time to get market traction,” Mastrangelo said, adding that the team might be more effective outside the U.S.

Ericsson also has designs on the U.S. broadband access market and could up its odds by acquiring Adtran, Calix, Occam or Zhone. The Swedish vendor has already acquired Entrisphere (a U.S. optical access vendor), Redback Networks (an edge router vendor with Bell carrier customers) and video player Tandberg TV. In addition, Ericsson has acquired IP DSLAM and remote DSLAM players elsewhere. “Ericsson has a lot of avenues of opportunity,” Keith said.

Nortel could be a dark horse in the space, as it has pegged IPTV as a priority but would probably need to acquire another vendor to get back into access. It could acquire its partner, Calix, or Zhone, to which it sold its access business in 2001.

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