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THE CUTTING EDGE

Broadcom to Buy HotHaus in Net Telecom Effort

July 19, 1999|JONATHAN GAW | TIMES STAFF WRITER

Broadcom Corp., hoping to someday use high-speed networks to deliver telephone conversations over the Internet, said Sunday it has agreed to acquire a Canadian software firm to help it do just that.

The purchase of HotHaus Technologies Inc., for $280 million in stock, would give Irvine-based Broadcom the ability to more rapidly develop technology to transmit voice over the Internet. Such technology could dramatically reduce costs for long-distance telephone calls for both households and businesses.

HotHaus develops telecommunications software that runs on Broadcom's silicon chips, as well as on those of other companies. Broadcom supplies three-quarters of the semiconductors used for high-speed Internet access through cable modems offered by cable television companies or digital subscriber line service through telephone companies. With HotHaus' technology, Broadcom would be able to integrate chip and software design.

"We're enabling this technology, which only now is beginning to get into small businesses" and residential areas, said Henry Nicholas, chief executive for Broadcom. "We will deliver voice over [data networks] and the consumer will never know the difference."

HotHaus was founded in 1994 by engineer Ross Mitchell, the firm's president and chief executive. Mitchell would stay on after the acquisition to manage the operation, which would continue to be headquartered in Vancouver, Canada, and would be integrated into Broadcom's cable business unit. Officials at privately held HotHaus, which has 70 employees, declined to provide details of its financial results.

Broadcom's proposed acquisition comes after long-distance giant AT&T Corp. acquired Tele-Communications Inc. and agreed to purchase MediaOne Group, big cable television firms that could potentially carry telephone conversations over their coaxial cables and began joint ventures to test voice over the Internet with Time Warner Inc. and Comcast Corp.

"This deal is a longer-term play. People are looking to integrate everything over broadband networks," said Patti Reali, an analyst with Dataquest. Broadcom "needed to get some solutions to put in cable and [digital subscriber line] modems pretty quickly."

Broadcom already is conducting small-scale trials with AT&T to test sending voices over the Internet for residential customers and plans to begin major trials in the second half of this year, Nicholas said, declining to offer specifics. The service, to be provided by AT&T through its cable television networks, could be commercially available by the second half of next year, he said.

So far, the use of data networks to carry telephone calls mostly has been limited to large corporations, but the hope is that it will filter down to the residential market soon. Data networks, which use the same computer language as the Internet, have the potential to carry voice at less than half the cost of regular telephone wires, perhaps reducing the cost of a long-distance call to that of a local one.

Revenue from services related to carrying telephone conversations over the Internet will exceed $20 billion in the U.S. by 2002, according to International Data Corp. This year, it will amount to less than $5 billion.

In the long term, Nicholas envisions data networks bringing video and audio as well as voice to a variety of consumer electronics devices.

Broadcom's plan to acquire HotHaus, which is expected to close within two months, would be its fourth takeover this year, bringing the amount the company has paid in stock to $767 million. Broadcom made its largest acquisition in April, when it paid $316 million in stock for Epigram Inc., a Sunnyvale networking firm..

Broadcom shares closed at $139.81 Friday, up $1.31, in Nasdaq trading.

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