Nortel acquires DWDM specialist

Nortel Networks’s US$300-million acquisition of Kanata, Ont.-based Cambrian Systems Corp. last month fills a gap in the company’s Dense Wavelength Division Multiplexing (DWDM) portfolio and better positions it to compete against Lucent Technologies in the metropolitan area, according to industry observers.

Nortel is buying privately held Cambrian from several different stakeholders, the largest of which is Newbridge Networks Inc. of Kanata, Ont., which owns 40 per cent of Cambrian. Newbridge chairman Terry Matthews owns another 20 per cent, which he has agreed to sell.

Cambrian Systems specializes in DWDM technology for metropolitan area networks (MANs), a market Nortel did not previously have expertise in, one analyst explained.

“Nortel didn’t really have a metropolitan-type system in the DWDM space, and Lucent did. So clearly, that was something that was missing in [Nortel’s] product space,” said Bob Hafner, vice-president and research director at market research firm Gartner Group Canada, based in Mississauga, Ont.

Christin Flynn, analyst at The Yankee Group in Boston, said that although Nortel currently has products that provide DWDM over long-haul networks, it probably felt pressure to accelerate its MAN strategy through an acquisition.

“My assumption would be that Nortel is buying Cambrian to try to keep up with Lucent,” Flynn said.

She noted that Lucent’s metro-area DWDM technology is not generally available yet, but she said Lucent officials have told her it is scheduled for release sometime in 1999.

According to James Frodsham, director of optical networks at Nortel in Ottawa, the Cambrian acquisition means his company is able to offer DWDM solutions for MAN environments at least nine months sooner than if it had developed the technology itself. Nortel is expected to release the first products based on Cambrian’s technology early in 1999, giving it a jump on competitors such as Lucent and Ciena Corp., according to Frodsham.

“There’s a number of competitors in this space, and they will probably be announcing product capability in 1999. But in terms of whether or not those products have been architected with the same diligence as the Cambrian solution, with the focus on metro (area networks), is yet to be seen,” Frodsham said.

Yankee Group’s Flynn said Ciena has traditionally focused on the long-haul market but it is developing a MAN-oriented product. However, she said she was recently briefed by Ciena officials who said the company is not really focused on the metropolitan market.

“They were just providing the (MAN) equipment because it was a natural fit with their long-haul product, but they didn’t emphasize the metro area,” Flynn said. In fact, Ciena indicated to her that it doesn’t see much of a market for DWDM in MAN environments, she said.

For its part, Nortel expects to see tremendous growth in metropolitan DWDM in the next few years. By 2003, metro-area DWDM could be almost a $2-billion market, according to Nortel’s Frodsham.

DWDM was first adopted for long-haul networks because it provided a cost effective way for carriers to increase fibre capacity without requiring them to add to their physical infrastructure. The technology uses multiple colours of light on the same fibre to create independent channels that can be used for any type of digital traffic, such as voice, data, video, ATM or IP.

According to Frodsham, DWDM offers a similar value proposition for MANs.

“We’re seeing tremendous growth in the need for bandwidth (in MANs), and that’s predominantly driven by data services (as opposed to traditional voice-based services). At the same time, we’re seeing the existing infrastructure hasn’t been design-optimized to accommodate the services driving the growth,” he said.

“DWDM technology is the answer for managing that growth and for managing that service mix cost effectively.”

He explained that because Cambrian’s DWDM technology, called OPTera, is both bit-rate and protocol independent it provides the flexibility needed to support the voice/data mix emerging in metropolitan networks. Each DWDM channel can operate at any bit rate from 50Mbps to 2.5Gbps, and it can accept any protocol.

“What that means is that at the edge of the network where you have this diverse array of services, anything from a video service or an Ethernet service connecting multiple LANs together or conventional SONET protocols, this interface can accept any of those services,” Frodsham said.

This has benefits for both carriers and users, he said.

“What that means to a carrier is they now have a flexible interface they can provision in their network cost effectively and not have to forecast or pre-plan the service they anticipate needing to connect at the edge of the network.

“From a user’s perspective, it means they now have an any-service-ready interconnect, so there’s no need for the adaptation of the service into the transport network. That means the service can now be networked in its native format across the metropolitan area,” Frodsham said.

He added DWDM may provide a way to extend Ethernet, and gigabit Ethernet specifically, beyond its current distance capabilities. During the NetWorld+Interop trade show in Las Vegas last May, Cambrian demonstrated along with Bay Networks, 3Com and Packet Engines the ability to transport native gigabit Ethernet traffic over DWDM without requiring conversion or encapsulation of the Ethernet frames into other formats.

“There are latency issues (with gigabit Ethernet) that need to be managed. But within the context of the MAN, the DWDM technology by and large eliminates the current distance limitations on the Ethernet transport,” Frodsham said.

“When you talk about long-distance networks, you will continue to need to map the various native services into SONET containers, in order for them to be transported across the nationwide backbones,” he added.

As for why Newbridge decided to sell its stake in Cambrian, according to company spokesperson Paul Goyette, Nortel’s offer represented a substantial gain on Newbridge’s undisclosed initial investment in Cambrian. As part of the deal, Nortel will continue to honour an existing OEM agreement between Newbridge and Cambrian.

“So while we realized a substantial gain financially, we also maintain access to the technology, to the products and to continued development of the products for the coming three years,” Goyette said, adding that Newbridge is also free to do business with other DWDM technology vendors.