Nortel takes on Internet traffic

Nortel Networks Corp., attempting to beat Cisco Systems Inc. and others to the market for new fiber-optic networks, plans to unveil as early as Tuesday technology that aims to sharply increase capacity and reliability on the Internet.

Networking companies are developing ways to increase data traffic and speed on existing fiber-optic lines, the backbone for "optical" networks that support the Internet and other communications. Nortel's (NYSE:NT) latest optical-network equipment pushes more data through lines partly by sending the data through less circuitous routes on the vast fiber-optic network compared with existing methods.

Several large networking companies, including Cisco, San Jose, Calif., and Lucent Technologies Inc., Murray Hill, N.J., have similar "next generation" networking technology under development, but analysts said Nortel, Brampton, Ontario, is getting the jump on a fast-growing multibillion-dollar market. Nortel, which had sales of $17.6 billion last year, traditionally has been strong in providing equipment to telecommunications providers, but has been in the shadow of Cisco in the broad networking arena. Recent breakthroughs are making Nortel a greater competitive threat, analysts said.

"The key thing for Nortel is that a service provider can go to one place for a solution" for an advanced optical network, rather than having to piece it together with equipment from various vendors, said Mat Steinberg, an analyst with RHK Inc., a South San Francisco, Calif., telecommunications-research firm.

Combining networking strengths
Nortel's move is among the first significant payoffs of the company's $9 billion acquisition of Bay Networks Inc. last year, analysts added.

"What they're doing now is really marrying Nortel's strength in core optical networking with Bay's Internet protocol expertise," said Chris Nicoll, of Current Analysis Inc., Sterling, Va.

Also seeking to combine networking strengths, Lucent earlier this year acquired Ascend Communications Inc. And last month Cisco bought networking-startup Cerent Corp., vowing to be a leading optical-network provider.

Clarence Chandran, president of Nortel's Carrier Packet Solutions division, said traditional routers, which direct traffic on a network, are "choking the Internet," and the company's optical-networking equipment should relieve congestion.

Nortel said its routing and switching technology will handle Internet traffic at speeds up to 19 terabits per second, and will eventually handle hundreds of terabits per second. Despite rapidly growing data flow on the Internet, however, some analysts believe capability at these levels is well beyond demand expected for the next few years.

Chandran disputed this, arguing that soaring demand for video, audio and other services on the Internet requires such bandwidth. "There will not be a bandwidth glut," he said, "not for the foreseeable future, anyway." Current industry technology allows routing and switching at maximum speeds of less than one terabit, Nortel said. In New York Stock Exchange composite trading Monday, Nortel rose $1.0625 to $48 a share.