DSL market still considered viable despite Nortel withdrawal

Nortel’s retreat from the DSL sector is more of a recognition that it came too late to market than any decline in the popularity of the bandwidth technology. The company was such a minor player that it made no economic sense to continue battling giants like Alcatel, Cisco Systems Inc and Lucent Technologies Inc. Earlier this month the Canadian high-tech giant announced it was closing the Promontory division it purchased back in the 1990s. The reasoning is quite simple, according to a company spokesman."It’s a low margin business," David Chamberlin explains to Network Letter. "John Roth has stated at the AGM that we would be exiting low margin businesses. DSL multiplexers are becoming pretty technologically stagnant and undifferentiated and we’ve chosen to focus our efforts on the markets of tomorrow." Financial analysts speculate that DSL sales made up less than one per cent of Nortel’s earnings last year. While other companies have maintained a steady DSL presence, Nortel failed to make a dent in the market despite its heavy investment. Even the firm’s rivals are not surprised by the course of events. "Someone like Nortel, who’s in a lot of different businesses, has got to look really carefully at what the best opportunities for them are," Robert Balsamo, VP product development at Paradyne Corp tells Network Letter. "They were really late to market and they didn’t have their own product. They had to go out and purchase Promontory." That late entry greatly hindered the Canadian company. Telcos across North America had already chosen products from other suppliers by the time Nortel salespeople appeared on their doorsteps. "I didn’t run into them as much," Balsamo notes. "The places we ran into them was where they just had a lot of Nortel equipment already installed." Even the company’s one-time corporate cousin jumped off the bandwagon. When BCE first began rolling out its Sympatico high-speed Internet service, it used Nortel’s one-meg modem. After technical problems, the telco quietly switched to Alcatel products instead. Now that Nortel has pulled out of DSL, telecom experts assume the slack will be picked up by its main rivals Alcatel, Lucent and Cisco. Paradyne’s Balsamo wonders if Nortel’s megamodem, manufactured by a different section of the company than Promontory, will also be mothballed. If it is, he believes his firm will reap the benefits. Nortel was concentrating on the smaller American ILECs, especially those already using its equipment. Another factor in the Nortel decision to abandon the product line is the crash in the DSL deployment market. DSL providers like Riptide in Canada and NorthPoint in the United States have gone out of business; other American firms like Covad Communications and Rhythms NetConnections are issuing warnings about their financial health. Those concerns have spilled over to Canadian partners of the U.S. firms. NorthPoint’s Canadian operations were taken over by Call-Net Enterprises Inc. Rhythms was in partnership with ailing CLEC Axxent Corp. Those failed ventures are no longer prospective clients for Nortel’s products. In addition, the assets of the bankrupt companies are being scooped up cheaply by other outlets. Most of NorthPoint’s assets were purchased by AT&T in the United States, although the telco is not rolling out the same service. Closing the cable modem gap DSL is still trailing high-speed cable in sales, although the longer term forecasts for the technology are optimistic. While most analysts expect cable will continue its domination in the high-speed Internet field, they also believe DSL will close that gap. An American study predicts that DSL users will jump from 2.9 million subscribers this year to 17.7 million by 2005. "DSL itself in terms of market is still a high growth area," says Balsamo. "I think that the types of customers, the amount of competition that’s in there is intense right now, so capital investment by a lot of the customers is being very careful." In the meantime, Nortel says it will concentrate on other market segments. It announced a series of new products at a recent trade show in the United States. "Nortel is choosing to focus our energies on high growth high value segments that drive our customers’ profitability," Chamberlin states. That decision doesn’t surprise Balsamo. "They did say they were going to seek other high growth areas," he notes. "I assume that is, from their perspective, better positioning in other markets that they have in the shorter term greater opportunity with."

DSL market still considered viable despite Nortel withdrawal

News | May 22, 2001

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