Hungry to have more Ethernet in its diet, Calix plunked down $171 million last week to buy up last mile rival Occam Networks.
Calix and Occam's Ethernet and overall approach to the market illustrate the diverse backgrounds of both companies.
Co-founded by the ever-entrepreneurial Mike Hatfield, who you might remember also helped to found the former AFC (sold to Tellabs) and Cerent (sold to Cisco), Calix came to the market with the idea that the telecom industry would transition to their last mile infrastructure to Ethernet.
After remaining largely in stealth mode until 2003, Calix's evolutionary C7 platform, a product element that supported multiple functions, including Digital Loop Carrier, DSLAMs, NG SONET multiplexers, IP Routers, Ethernet switches, ATM switches, optical access platforms, and digital cross-connects. Bucking the late 1990s trend of introducing a product slideshow, what was interesting about Calix was the fact that it had over 50 customers, including the former Alltell (Windstream) and Embarq (now CenturyLink).
Occam, alternatively, came out swinging with an all Ethernet vision from day one when it was founded in the late 1990s by former Cisco veteran Mark Rumer and then CEO Lisa Farr.
When I first met Occam Networks in 2001, ADSL and Ethernet as a carrier service were both arguably nascent. What was interesting at the time about Occam, while Calix was still in stealth mode, was that they had this pizza box style dual DSL/POTS supported product that resonated well with tier 2-3 ILECs that were looking for a more nimble player that would help them initially evolve their copper networks to deliver ADSL services with Ethernet backhaul capabilities.
Of course, now the combined company can put its respective Ethernet expertise under one common message.
"We started with an approach that the world was going to Ethernet, while Calix's approach was they wanted to help telcos transition to whatever was next," Juan Vela, Director, Solutions Marketing and Strategy for Occam Networks in an interview with FierceTelecom. "It could have been Ethernet or it could have been something else, but they did not make that bet early on like we did. From a core intellectual property perspective, we learned a lot about Ethernet and be able to bring that to the table as the entities merge."
That's not to say that Calix has no Ethernet capabilities. The vendor has been aggressively rolling out its E-Series product portfolio, one that can target both existing copper-based Ethernet and fiber Ethernet capabilities. But with the Occam acquisition, it gains even more expertise that it can weave into its product line.
In addition to gaining Ethernet capabilities, the deal is also about scale. On the domestic side, the deal will obviously create a larger access player power that can collectively target the tier 2 and tier 3 telco market where it's not only having to contend with a mix of some smaller vendors like Enablence and Zhone, but also the ever-aggressive ADTRAN.
Traditionally a supplier to their tier one telco, ADTRAN, which has been targeting both tier 2, but also tier 3 ILECs that have successfully won broadband stimulus grants. The combined company will be able to compete with incumbent vendor ADTRAN, which currently provides access equipment to Qwest, while Calix provides gear to CenturyLink.
"The combination of Calix and Occam creates a strong access player that will likely have a near term impact on Adtran, Enablence, and Zhone, and a longer term impact on Alcatel-Lucent and Motorola," wrote Teresa Mastrangelo, principal analyst, broadbandtrends, in a research note.
The deal will also impact on Calix's and Occam's movement into the Caribbean and Europe, respectively.
Vela believes the Calix acquisition could help scale its operations to "not only approach the U.S. market, but also the global market with true benefits we can leverage across multiple regions."
However compelling the marriage will be in thwarting aggressive international players like Huawei and ZTE out of the IOC market, Mastrangelo wrote that "it will have little impact on markets outside of North America." Larger international carriers will likely continue to favor well-established larger vendors that have scale and expertise of serving tier one networks.
Like every market segment, consolidation of the last mile access market is not new.
Other deals in this space worthy of note include of course Tellabs snapping up the old AFC to get a seat at Verizon's FiOS table. Then, there was Motorola's acquisition of the former Quantum Bridge, now another FiOS equipment standby.
Nonetheless, the Calix/Occam could be a sign that deal could be the start of new wave of necessary consolidation.--Sean