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Tellabs, Riverstone Set Broadband Gear Partnership

Scott Moritz

Tellabs (TLAB) is expected to announce Wednesday that it has formed a partnership with Riverstone Networks to develop and sell broadband-access equipment for cable systems.

Tellabs is contributing an undisclosed amount of financing, and Riverstone, a unit of Cabletron Systems (CS), will be contributing equipment to the deal.

Riverstone filed an S-1 registration with the Securities and Exchange Commission in September and says the IPO is still on schedule. The Tellabs alliance will help bring Riverstone's router and switching equipment to the market more quickly, and presumably give the company a bigger revenue base and customer list to point to as its shares debut.

For Tellabs, the arrangement will mean a broader range of cable-equipment products, including gear for high-speed Internet access and telephone service over cable systems.

The companies said the timing of the partnership was unrelated to AT&T's (T) decision to stop buying cable-equipment supplies for the remainder of the year. Tellabs' head of access systems, Tom Gruenwald, says Tellabs was not affected by AT&T's move.

But the inhospitable IPO market certainly figured into Riverstone's decision to join forces with Tellabs.

So, one might ask, why not merge if everything is so synergistic?

"If you look at the entire environment with stock prices depressed and market uncertainty, this was a great partnership, where we both reap a lot of benefits of a merger but at a much lower risk," says Gruenwald.