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TeraBeam, Lucent Form Optical Net Firm

Lucent Technologies Inc. Wednesday advanced its Internet strategy by sealing an optical networking venture with TeraBeam Networks.

Lucent (LU) invested $450 million in cash in the new TeraBeam Internet Systems, taking a 30 percent stake. TeraBeam holds the remaining 70 percent.

The firms will implement TeraBeam's high-speed data networking between local and wide area networks. TeraBeam's Fiberless Optical Network system sends data through the air using invisible light. The data travels thousands of times faster than current "first mile solutions."

The core of TeraBeam's solution is a customer unit about the size of a small satellite dish that utilizes a proprietary holographic optical element. The unit, which can be mounted in an office window, sends and receives data through the air. The technology, which can be provisioned in days, provides broadband IP connectivity to the Internet and intranets.

In a conference call Wednesday, TeraBeam Chief Executive Officer Dan Hesse said his company was forming the new venture to focus on eliminating the "first mile problem," in which there is a downshift in speed when data is transmitted from local area networks to wide area networks.

"By tapping into Lucent's leadership in broadband networking, coupled with our breakthrough technology, TeraBeam is leading the charge in shattering the first mile speed barrier."

He also said the firm's use of air rather than glass technology is cost flexibile as only one Hub is required to power several end users.

Lucent didn't stop its wheeling and dealing in the U.S. On Wednesday, Lucent said it planned to invest $150 million over the next three years to build a 200,000-square-foot extension to its Blanchardstown facility in Dublin, Ireland. The facility, which will serve as an optical networking provisioning center for customers in Europe and the Asia/Pacific region, will reduce shipping time to these customers from several weeks to several days.

Lucent's deal with TeraBeam is the giant's latest move in brushing up its chops in the fiber optical networking market. The New Jersey-based firm is going head to head with Cisco Systems Inc. (CSCO) and Canada's Nortel Networks (NT). The three firms are racing to break the bottlenecks in the complex technology of optical networking.

Lucent's Bell Labs has garnered more than 2,000 patents in optical technology alone. According to Dell'Oro Group, Lucent captured the largest market share -- 34 percent -- of the $3.8 billion global DWDM equipment market in 1999.