PairGain profits by staying ahead of technology curve.

Users flock to system that compensates for distortion

As anyone who's ever navigated a highway can attest, the route is only as good as the on-ramps and off-ramps.

And, while fiber optics may be the smooth, fast telecommunications track of the future, it's good old copper phone wire that will continue to be used for the final connections -- those on-ramps and off-ramps -- into our offices and homes for years to come.

Fact is, billions of dollars and many years still need to be invested before an all-fiber-optic phone system is achieved. So companies and individuals continue transmitting much of their data over the older, copper-wire system.

That situation is fueling the fortunes of Cerritos-based PairGain Technologies Inc., a leading provider of telecommunications products based on HDSL, or High-bit-rate Digital Subscriber Lines, technology.

By making the most of the existing copper-wire infrastructure, PairGain's HDSL equipment allows companies and individuals to accomplish all types of sophisticated data transmissions without having to wait for an entire fiber-optic phone system to be up and running.

Product lines

In the late 1980s, Bell Communications Research, a non-profit research group funded by the regional Bell companies, developed HDSL, which allows high-speed digital transmissions over copper wires. HDSL involves high speed Digital Signal Processing to create a mathematical model of the copper wire to compensate for distortion.

PairGain jumped on the technology, and in 1992, delivered the first HDSL systems, which are now widely used by the seven regional Bell operating companies and most independent telephone companies.

PairGain systems are marketed under the trademark CopperOptics, reflecting their ability to provide the high-end, fiber-optic-quality performance over copper lines. HDSL offers "full duplex," which means the system can simultaneously handle transmissions traveling in both directions.

PairGain designs, manufactures, markets and supports products that enable telecommunication carriers to more efficiently provide high-speed digital services, from video teleconferencing to wide area networking, to end users -- all over existing phone lines.

According to an Aug. 22 report on the company by Red Chip Review, a small-cap securities research firm based in Portland, Ore., PairGain's products are "usually more cost- and time-effective to install in local subscriber loops than conventional repeatered systems or fiber optic cable."

While other companies are similarly exploiting the potential of existing copper-wire lines, PairGain was the first to market HDSL systems. As a result, it has "a very large embedded base of equipment already in use," according to PairGain Vice President Mike Lefkowitz. And, Lefkowitz added, PairGain offers a much broader product line to fit a variety of situations and applications. Lefkowitz cited the company's "Doubler," a product that doubles the length of copper wire over which HDSL will operate. Specifically, the normal HDSL transmission length of 2.5 miles of wire is doubled to five miles.

Market demand for HDSL products is strong and growing rapidly because, Lefkowitz said, "Bandwidth is contagious -- the more speed you have, the more you want." By "bandwidth," Lefkowitz was referring to the maximum amount of information that can be transmitted at any given time on a land-based telecommunication line.

HDSL applications

In the present business environment, where more and more companies are demanding high-speed multimedia access lines, it's just not possible to guarantee fiber-optic lines to all, even in the near future. The long-promised all-fiber future may yet be 20 to 25 years away, according to Lefkowitz.

In the meantime, PairGain's HDSL technology is a rapid, low-cost method that companies can use to meet their demand for data transmission technology. And businesses are not the only ones demanding these high-speed data capabilities. Among the residential applications of HDSL technology are video on demand, instant replay, broadcast television, interactive games, home shopping services and educational data bases.

As for other potential applications of HDSL, Lefkowitz cited two new projects in which PairGain is involved. One is a joint educational venture PairGain is undertaking with Bell Atlantic Corp. in New Jersey, Lefkowitz explained. All participating schools will be tied into an educational learning network, which will provide video as well as multimedia on demand.

The pilot program is running now, not just in the schools but also in the homes of students and teachers with home computers.

In the second new project, PairGain is involved in building the new 911 network for Chicago, which Lefkowitz said will be the world's largest private high-speed fiber network. The final connectors to firehouses, hospitals and schools will still be copper, which is why PairGain is involved. PairGain is in charge of hooking up those copper connectors to the fiber-optic network. "The whole focus is to implement faster and save money, and they're not giving up anything on quality by using copper as extension of fiber," said Lefkowitz.

PairGain was founded in 1988 and went public in 1993. Its stock trades on Nasdaq under the symbol PAIR.

Inc. magazine recently rated PairGain the No. 1 technology company, and the No. 3 company overall, in its 1994 Top 100 Fastest Growing Companies in the U.S.

According to Red Chip Review, PairGain's second-quarter revenues in 1994 were $13.66 million, 71 percent better than second-quarter 1993 revenues.

The company's annual revenues have grown from $2.4 million in 1991 to $36.3 million in 1993, with estimates by various analysts for 1994 ranging from $50 million to $58 million.

Bright future

Ron Altman, a telecommunications strategist with New York investment banking firm Furman Selz Inc., recently published a very favorable report on PairGain. "We think this company is uniquely positioned to ride a wave of demand for the digitalization of the copper network," Altman said. "Realistically, it will take 10 or 15 years before fiber will be ubiquitous enough in the public network to replace copper. And therefore, over the next five years, the telephone companies will need to feed their copper network a good solid dose of steroids. So HDSL substantially increases the ability to transmit more information over longer distances using the existing copper network. PairGain is a company that is in front of a wave of demand. They are dominant in their industry and, it seems to us, they are going to grow nicely."

Likewise, fellow telecommunications industry analysts at New York investment house Lehman Brothers "continue to recommend PairGain" in their Oct. 1994 industry report.

Lefkowitz said PairGain officials are also enthusiastic about a new technology being developed by the company. It is called Asymmetrical Digital Subscriber Line. Using a new chip which anticipates and compensates for distortion in copper telephone lines, ADSL will allow the transmission of multi-channel video from one central location to residential customers, all on existing phone lines. "In the long term, ADSL will be very important," Lefkowitz said.

Even if the fiber-optic network is installed throughout the U.S. more quickly than PairGain and industry observers anticipate, PairGain will likely find an abundance of demand for its existing and in-development products in Third World countries, Lefkowitz said.

Among the countries being targeted by PairGain are China, India, Brazil and the former Eastern European nations, where infrastructure is primitive, but demand for telephone services is exploding, Lefkowitz explained.