Ericsson to buy Entrisphere for about $290 million?

Speculation that Ericsson will buy broadband access equipment maker Entrisphere

Ericsson will reportedly buy broadband access equipment maker Entrisphere for US$290 million in an effort to win more access business in North America, including some at AT&T.

Market research firm Ovum/RHK, citing a report in Swedish technology newspaper Ny Teknik , states that Ericsson will buy Entrisphere for approximately $290 million, in order to secure a deal to supply broadband network equipment to AT&T. Ovum/RHK says Ericsson's current cooperation agreement with Entrisphere isn't likely to be satisfactory for AT&T.

Ericsson and Entrisphere had been partnering for the Verizon and AT&T Gigabit Passive Optical Network (GPON) RFP opportunities for some time.

"It was rumoured that Ericsson was going to buy Entrisphere if they won some GPON business at Verizon. They did not make the short list and the merger activities dissipated," states Ken Twist, broadband analyst at Ovum/RHK, in a bulletin to clients.

In the meantime, AT&T was still moving ahead with its GPON selection and eventually Entrisphere was identified as one of the possible vendors to be selected for AT&T's GPON FTTP build, Twist says. However, AT&T wanted more than a partnership between Entrisphere and Ericsson because small start-ups lack operational scale and partnerships, and long term guarantees that both businesses will continue working together, he says.

"We believe that AT&T wanted to see a stronger bond between the two before deploying equipment for their GPON FTTP build - thus the acquisition," Twist says.

Ericsson would not confirm the reports, stating that it does not comment on rumors. Entrisphere did not comment by press time.

Ericsson has been keen on securing wireline access business from an RBOC, Twist notes, adding that the union is likely to reach beyond AT&T's GPON business.

Entrisphere was founded in 2000 as a broadband digital loop carrier (DLC) with IP capabilities. Since then, it has evolved and added Broadband PON and GPON to its portfolio "but have not been successful at growing the business in a meaningful way in spite of having some great technology," Twist says.

"They have been somewhat successful supplying equipment into the Independent Operating Company (IOC) market competing against Calix, Tellabs, Zhone, Adtran, Occam and others but have not secured any major wins against Alcatel or Tellabs in a large operator," he notes.

The market opportunity for DLCs and multiservice access platforms in North America is roughly $900 million annually over the next two to three years, according to Twist. Ericsson provides Entrisphere with the financial and operation scale necessary to help make it a significant player in a crowded space.

The combined entity will become the second largest company with an access portfolio in North America behind Alcatel, Twist says.

"We believe that if Ericsson and Entrisphere are able to capitalize on their new capabilities they will have a significant opportunity to gain market share in the IOC and RBOC markets with BB-DLC/MSAP and PON," Twist says. "Long term, they have the ability to become a formidable threat to Alcatel and Tellabs."

Twist also notes that Entrisphere's platform could play a key role in Ericsson's IMS, wireless aggregation, or its GSM/IP migration plans in North America due to Entripshere's multiservice -- traditional voice, SIP, H.248, video, legacy TDM, etc. -- capabilities.

"Regardless, given the nominal amount offered for the company and the potential for upside on the wireline access business alone, we believe that the acquisition is a smart one and it has the potential to establish Ericsson as a major N.A. access vendor in a short time," Twist concludes.

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