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Nortel Networks has agreed to acquire enterprise router vendor Tasman Networks for $99.5 million in cash, giving Nortel a product in the low- to mid-range branch office and enterprise access router market.

Tasman was previously known as Tiara Networks until 2002, when the company changed its focus from the access and aggregation market to the mid-range branch office router space. In its eight years of life, the company collected a total of $93 million in funding; its last installment was a $14.4-million round from existing investors in May 2004.

Tasman’s routers are aimed at the low- to mid-level enterprise market and focused on maximizing the utilization of branch office wide area networks (WANs)--specifically those comprising multiple DS-3s and smaller--an application that Nortel said represented a gap in its product portfolio. Though this market is utterly dominated by Cisco Systems, Tasman’s 3120 converged services router was recently judged by an independent tester, the Tolly Group, to be two to four times faster than Cisco’s competing routers, the 2821 and the 3825.

“Better WAN utilization lowers your monthly opex cost because [customers] might not need to go to multiple T-1s,” said Mike Fitzgerald, leader of Nortel’s enterprise router portfolio. “[They] may be able to use a single T-1. Or rather than using a full DS-3, [they] might be able to use a fractional DS-3.”

Nortel’s immediate plans for the product are to sell it to existing Nortel customers, with a secondary focus on new customers looking for gear that would allow an eventual migration to a multimedia IP infrastructure. Fitzgerald estimated that Nortel’s customers could account for roughly 22% of the $4.5-billion overall enterprise router market.

“The idea of going head-to-head in the data space [outside Nortel’s existing client base] is something that’s not all that attractive to us,” Fitzgerald said, emphasizing that the acquisition gives Nortel end-to-end coverage in the enterprise data space.

Nortel will look to migrate customers of its existing branch-office routers--the mature 2430 and 5430 Multiprotocol Routers, obtained through Nortel’s 1998 acquisition of Bay Networks--to the Tasman product, Fitzgerald added. “Many of [the multiprotocol router customers] have been waiting for us for many years to come to them with a [newer] solution.”

Nortel will sell the gear both directly to enterprise customers as well as to service providers, including Tasman’s existing customers, among whom are Cox Communications, MCI, Qwest Communications and XO Communications. Nortel will allow those service providers to continue to private-label the Tasman products if they wish.

The deal contributes to Nortel’s efforts to increase its presence in packet-based enterprise infrastructure markets. In the third quarter, Nortel’s enterprise revenue, though down 6% sequentially, was up 16% from a year earlier. In September Nortel announced the realignment of its corporate structure into two business divisions: the Enterprise Solutions and Packet Networks group and the Mobility and Converged Core Networks group.

As a private company, Tasman’s annual revenue is unknown. The company currently employs 160 people, with a headquarters in San Jose, Calif.

Nortel expects to close the Tasman acquisition in the first quarter of 2006.

In April, Nortel announced plans to acquire government infotech consultancy PEC Solutions for $448 million in cash.

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