Telica Buy Hardens Lucent’s Softswitch Strategy

Moving swiftly to address a burgeoning market for softswitches , Lucent has snapped up softswitch maker Telica for $295 million in stock and options.

Lucent, which is regaining its footing after several difficult years,
weighed developing its own platform to help service providers roll out voice, video and data offerings. But two factors favored buy instead of build.

“Time-to-market is critical and this market is happening now,” Janet
Davidson, Lucent’s president of integrated network solutions group, said during a conference call with analysts.

Lucent also said it liked the flexibility of Telica’s softswitches (also known as media gateways), which bridge traditional circuit-switched and converged networks and manage mixed traffic.

Not only will they be pivotal in early VoIP deployments, where customers will manage mixed and legacy systems, but they are also
well-suited for end-to-end converged networks, Davidson said.

Lucent CEO Pat Russo said getting into carriers’ networks now is key to landing future business as customers upgrade to converged systems.

The buy comes amid rising interest in VoIP and the technologies that will power it. In-Stat MDR said the softswitch market jumped by more than 42 percent in 2003. Analysts at the research firm expect to see a compound annual growth rate of 64.6 percent between 2003 and 2008 in softswitches.

What’s more, big networking firms such as Cisco and
Nortel have been pursuing business and technology in the space.

Telica’s product line, marketed under the PLUS brand name, will be folded
into Lucent’s Accelerate portfolio for large-scale VoIP networks once the
deal closes in the fall.

For Telica, based in Marlborough, Mass., the deal will help expand its ability to get its products in front of large carriers. The privately held, venture-backed company currently has about 60 customers. Most are competitive local exchange companies, but it does count regional player
Verizon as a customer as well.

The firm was founded at the start of the telecom equipment boom in 1998. It weathered the downturn in 2001 and now has about 250 employees. John St. Amand, co-founder, president and CEO, will remain with Lucent and oversee Telica as it becomes part of Lucent’s INS business.

In a research note, analysts at SG Cowen & Co. said today’s deal is a
positive move for Lucent, which “has been arguably behind in developing a softswitch.” It also said the company’s quarter could be tracking slightly ahead of expectations.