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To: Greg h2o who wrote (17365)	12/9/1999 10:13:00 AM
From: cmg	Read Replies (3) \| Respond to of 42804

Nortel Is Said to Be Seeking to Buy Qtera Corp. By SETH SCHIESEL idding to stay on top of the fast-changing optical communications market, Nortel Networks Corp. is nearing a deal to acquire Qtera Corp. for $2.5 billion to $3.5 billion in stock, executives close to the talks said Wednesday. The executives said a deal could be announced within a week but cautioned that the negotiations could still fall apart. One person close to the talks said there was an 85 percent chance that the two companies would complete a deal. Another person close to the negotiations estimated that chance at 90 percent. Spokesman at Nortel, which is based in the Toronto suburb of Brampton, Ontario, and Qtera, which is based in Boca Raton, Fla., declined to comment. Qtera, which is underwritten by venture capitalists, is among a group of young, little-known companies that are developing the next generation of optical communications technology. Along with deregulation and the rise of the Internet, the quick pace of optical development has been a main factor in the communications revolution, allowing glass fibers thinner than a human hair to carry billions of bits of digital information each second. Big communications equipment companies like Nortel and Lucent Technologies, the former equipment unit of AT&T, spend billions each year on research and development. But because there are so many technologies to pursue, the big players often find themselves acquiring start-up companies that have focused on niche areas that end up becoming important. Qtera is developing technology that allows fiber optic lines to carry signals farther than they usually do now without regeneration. Generally, optic signals that are carrying billions of bits a second must now be regenerated every 250 to 375 miles, analysts said. When the optical signals are regenerated, they are usually converted into electrical signals, then amplified and reconverted into pulses of light. The need for such regeneration adds cost and complexity to the construction and operation of continent-spanning fiber optic networks. Such networks are being built worldwide. Along with other companies like Corvis Corp., Qtera is developing a system meant to allow signals to travel as far as 2,000 miles without such regeneration. "If you can kill electrical regeneration, you eliminate a huge cost element; it's a huge cost advantage," Sender Cohen, an analyst for Lehman Brothers, said Wednesday. "Qtera has the right solution to carry very high bandwidth traffic over very long distances cost effectively, more cost effectively than just about anything on the market today. The only other company that has a comparable solution is Corvis." Both Qtera and Corvis, which is based in Columbia, Md., have tested their systems with Qwest Communications International Inc., the upstart long-distance communications carrier that has agreed to acquire US West Inc., the regional Bell company. Qwest also happens to use a lot of Nortel's optical transmission gear. Nortel is considered the world leader in equipment that can transmit 10 billion digital bits a second on a single optical fiber. It would appear logical that Nortel would want to maintain its optical leadership by integrating Qtera's technology into its optical communications products. But some analysts wondered Wednesday whether Nortel's pursuit of Qtera bespoke a Nortel weakness. "The thing that grabs me is why is Nortel Networks making this investment in a space that you would think they would own," said Frank Dzubeck, president of Communications Network Architects, a networking analysis and consulting firm in Washington. Referring to the prominence of Cisco Systems in the market for Internet switches and of Lucent in the market for traditional phone systems, Dzubeck added: "It's like Cisco making an investment in a routing company. It's like Lucent making an investment in a telephone switch." Qtera has yet to ship its product in significant quantities, but the communications equipment market has become so heated that a $3 billion valuation would not appear unreasonable, analysts said.