Arris Venture Hopes For Closer Ties to GI Boxes

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Arris Interactive LLC said plans to combine its partners'
expertise in cable telephony and modems could lead to broader relationships with other
vendors such as General Instrument Corp.

Arris partners Antec Corp. and Nortel Networks last week
announced U.S. and European field trials beginning in June for "Packet Port," a
new, jointly developed external unit combining Antec's constant-bit-rate telephony product
with standards-based cable modems produced by LANcity, which Nortel contributed to the
Arris venture.

The product attempts to address one key issue facing
cable-telephony-equipment vendors: how to migrate their customers from existing
circuit-switched solutions to future Internet-protocol platforms.

Arris already has about 100,000 cable-telephony lines in
service for its "Cornerstone" constant-bit-rate product, which consists of a
host digital terminal that links a cable headend to a digital switch and a voice port that
rests at the customer premises.

Major U.S. operators such as AT&T Broadband &
Internet Services (formerly Tele-Communications Inc.) and Cox Communications Inc. are
deploying Cornerstone

The partners see Packet Port, which is backward-compatible
with Cornerstone, as not only addressing the migration question for current clients, but
also for potential customers that are still deciding whether to make the telephony
investment now or to wait for more cost-efficient IP solutions.

Arris also said there is a significant market of operators
that want an integrated voice and data platform with a variety of deployment options.

Packet Port configurations will include a field-hardened,
network-powered version enabling installation on the outside of a customer's building,
reducing the costs associated with inside-installation issues like dealing with computer
cards and indoor wiring.

"The commitment is to provide telephony, data and
Internet through cable systems, whether the terminal is outside, inside the home,
connected to a set-top box or through a computer," Antec chairman John Egan said.

To that end, Arris also said last week that it was working
with GI to achieve interoperability between its products and GI's "DCT-5000"
advanced-digital set-top box, which MSOs hope to deploy in force beginning later this
year.

Arris said it wants to work more closely with GI not only
on interoperability with its hardware, but also in offering overall network solutions to
cable operators.

One reason why, Arris vice president of marketing John
Lakin said, is the need to find ways of differentiating Arris' products once industry
initiatives such as PacketCable and OpenCable make everyone's standards-based products
equally interoperable.

"By partnering with companies that have known
leadership products, we can provide those kinds of differentiation," Lakin said.
"We're discussing being their network partner, but I wouldn't want to go any further
than that."

In some respects, that relationship could take some time to
develop. For one thing, Arris is developing telephony products for the same sector that GI
wants to occupy with its own competing solutions.

Glenn Altchek, GI's director of marketing for IP telephony,
said the second-generation DCT-5000 will integrate the now-external
multimedia-terminal-adapter components for telephony that Arris wants to provide through
Packet Port.

While the advantage of standards-based equipment is that
there is room for multiple vendors to use a single platform, such as the DCT-5000, it
could be tough for Arris to compete against GI for space on its own box.

"We know that we won't be the sole-source provider for
telephony [via the DCT-5000], but we do believe that we'll get a significant share of the
market," Altchek said.

Egan and other executives discussed their plans in
conjunction with the formal completion of the Arris partnership.

At the close, the partners announced some financial
shuffling that boosted Nortel's stake in the company and created the potential for it to
gain an even bigger share if Arris' cable-modem sales meet certain targets this year.

By contributing LANcity to the Arris venture, Nortel raised
its equity stake to 81.25 percent from the 75 percent originally contemplated in its
memorandum of understanding with Antec.

Nortel can gain an additional 6.25 percent of the
partnership if sales of LANcity modems total $300 million or more for the 18 months ending
June 30, 2000. Or Nortel could take about 2.75 million shares of Antec.

By essentially selling the additional 6.25 percent equity
to Nortel, Antec will realize a $60 million pretax gain amounting to 79 cents per share
for the current quarter.

Egan estimated that first-quarter LANcity sales were about
on par with the $30 million to $40 million recorded in the fourth quarter.

Nortel will not get the additional equity if LANcity sales
total $180 million or less during the 18-month period, but it would get a prorated
increase for amounts between $180 million and $300 million.

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