Access equipment maker hauls in a big funding round so it can chase even bigger customers

May 9, 2005

4 Min Read
Entrisphere Scores $75M Round

In the race to drive profitable carrier services down last-mile access networks, Entrisphere Inc. has just topped off its tank with a whopping $75 million Series C financing round, its third in five years (see Entrisphere Closes $75M Round).

"We're going after the top tier of customers here… and this is an appropriate sized round for that," explains Don McCullough, Entrisphere's VP of marketing.

Entrisphere, which makes a multiservice broadband access loop carrier platform device thingy (MBALCPDT) called the BLM 1500, is in the business of delivering voice, video, and data services down last-mile pipes (a.k.a. first-mile pipes), and it doesn't matter if the carrier's access network is made of old copper, new fiber, or some combination of the two. In a 7-foot telco rack, three BLM 1500s can support up to 4,032 POTS lines, or 2,016 ADSL2+ lines, or 672 Ethernet lines (see Entrisphere Launches Flagship Device).

The vendor is most often compared with Calix Networks Inc. in terms of device functionalty. But while Calix is targeting smaller carriers and working its way up to customers such as Sprint Corp. (NYSE: FON), Entrisphere is aiming straight for the top, targeting only the largest 20 or 30 telecom carriers or cable networks in North America (see Calix, Entrisphere Sprint Forward).

That strategy sounds a bit nutty, given that the biggest carriers -- the ones with the most spending dollars and the largest access networks -- have already declared their equipment vendor choices for their next-generation access networks, and Entrisphere didn't make the cut. (See Alcatel, Redback Score at BellSouth, Moto Gets a Piece of Verizon FTTP, and Mais Alors! Alcatel Bags $1.7B SBC Deal .)

But the vendor's CEO, Mark Floyd, says that with all the permutations possible in a triple-play last-mile network, "the game isn't over just because something was announced in the press.

"There will be second sources to all of those vendors that have been announced," he says, adding that "not one access architecture will hit 100 percent of the users in any network."

With that "it ain't over 'til it's over" strategy guiding its big carrier sales, Entrisphere has continued to sock away cash, having raised $171 million to date. Its latest round was led by VantagePoint Venture Partners, with participation from Entrisphere's entire exisiting investor group (see Entrisphere Nabs Siemens Exec).

Floyd says the money will to go expand customer support, manufacturing operations, product development, and other functions, but he's not hiring everyone all at once. "Right now, we're staffed at the appropriate levels," he explains.

The company is so convinced it can help big carriers make a difference, it has even entered the frighteningly low-margin optical network terminal (ONT) market -- the same equipment area that gave Tellabs such fits that it had to go buy a startup just to keep its technology up to date (see Tellabs Vacuums Up Vinci).

Floyd, for one, has been down this road before. He led Efficient Networks in the DSL modem business -- another overcrowded, low margin equipment area -- against some big competitors (Alcatel) in some big accounts (SBC). (See A New Boss for Siemens ICN).

Additionally, Entrisphere says it has some tricks that may help it move in where other ONTs have faltered.

"We think we have some good ideas for how to improve ONTs," says marketing chief McCullough. Those include allowing for longer cable runs between the power supply and the ONT itself, and enabling the ONT's electronics to be removable from the ONT housing -- a carrier perk for households that move, change service, or just don't want to use the advanced services within their reach.

Entrisphere's point, as McCullough explains, is that it makes sense for carriers building fiber connections to homes to have the option of using a device that can deliver up to 100 Mbit/s of bandwidth. He says carriers delivering IPTV with HDTV channels will need "something north of 25 Mbit/s per home". But later, evolving data and video services will translate to a bigger bandwidth need.

The ONT business, like all of Entrisphere's work, may take some time to catch on. "We won't be profitable with the first units," McCullough says, "but we expect it to be an attractive business long-term."

Likewise, chasing the world's largest equipment vendors in the access market isn't for the faint of heart -- nor is the startup looking for a quick and easy shot at liquidity. "I don't think we would have raised this type of money if we weren't serious about being a long-term player in this industry," says Floyd.

Entrisphere, which just made its product public last year, has announced two customers and has reportedly been linked to a major access RFP at Sprint, where Lucent Technologies Inc. (NYSE: LU) is serving as its supply partner. Competitor Calix, while going after smaller accounts, has more than 150 service provider customers and is booking revenues at a rate of more than $100 million a year.

Separately, today, Entrisphere announced it has added Cynthia Ringo to its board of directors. Ringo, who served as CEO of CopperCom, and, briefly, Pluris, is now a managing director of Vantage Point Venture Partners.

— Phil Harvey, News Editor, Light Reading

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