ECI Buyout

ECI has approved its acquisition by a group of investment companies that includes Swarth Investments and Ashmore Investment Management for $1.2 billion. ECI expects this deal to close by the end of 2007.

ECI has done well using IPTV to maintain and improve its position with major carriers such as France Telecom and Deutsche Telekom. It now has the strategic problem of figuring out how to maintain its growth and position now that ADSL is near or at its peak.

This buyout gives ECI's current major shareholders an opportunity to get while ECI is in a strong position. Its new owners may have a different strategy in mind, such as splitting the company up and selling off the pieces.

ECI Takeover in the Works

Israel based ECI Telecom is holding talks with an investment firm about tale of the company's stock for $1.2 billion. Major shareholders in ECI apparently would like to divest their holdings. These discussions apparently have not reached a definitive stage.

ECI has done very well in the access business and particularly in supporting IPTV services. Nearly all of the IPTV subscribers in France Telecom are served by ECI systems. About 40 percent of the VDSL lines being installed by Deutsche Telekom are served by ECI systems.

The broadband market is reaching a point of saturation and it is likely that telco spending on broadband equipment is starting to decline. This will make a very competitive market even more so. This puts a smaller company competing with Huawei and giants such as Alcatel-Lucent, Ericsson, and Nokia Siemens in a very tough position. It is not surprising that its current investors would like to find a way out.

Motorola ECI Partnership

Motorola has formed a partnership with ECI that gives it the ability to offer ECI's access systems globally. The initial focus of the agreement will be on the U.S. market, but the agreement permits Motoroa to market ECI IP DSLAM access equipment globally except for countries where ECI already has strong market presence.

ECI has a strong set of IP access system products that support ADSL, ADSL-2+, and VDSL in both central office and remote locations. The ECI products complement Motorola's current set of PON FTTP systems. ECI's systems support a large portion of the broadband and IPTV subscribers at France Telecom and Deutsche Telekom. Motorola is one of two PON FTTP suppliers to Verizon's FiOS service.

Motorola has a large share of the North American IPTV access market through its acquisition of Next Level. A large portion of the Canadian telcos and the small U.S. telcos that have IPTV services use Motorola/Next Level systems. These Next Level systems are ATM based and many of these telcos are looking for a way to upgrade them to an IP DSLAM.

While Motorola's primary focus for its access systems has been North America, it has recently started marketing its access systems internationally. It has found that cable companies interested in FTTP architectures and some telcos are showing interest. Motorola already has a strong relationship with many cable companies outside of the U.S.

This partnership makes good sense for both companies. Motorola needs a way to retain its Next Level customers, otherwise they will go other vendors. ECI has never achieved much success in North America even though it has a strong product line. The two companies should do well by focusing initially on Motorola's current customer base.

Deutsche Telekom IPTV Subscribers

I just heard from a reliable source that Deutsche Telekom had 25,000 IPTV subscribers at the end of 2006. About 15,000 of these were served off of Siemens VDSL systems and 10,000 were served off of ECI VDSL Systems.

This means that Deutsche Telekom made good progress with its IPTV service in the fourth quarter of 2006. This is a running rate going into 2007 that will put its objective of 100 to 200 thousand IPTV subscribers by the end of the year within reach.

This is also good news for Microsoft. If DT maintains this rate, it will be the poster child for the Microsoft IPTV Edition Software.