Convergin Brokers VC Deal

Here's a statement you won't hear too often these days: "We've closed a new round of VC money to fund our expansion in North America."

But that's exactly what service convergence technology startup Convergin announced this week as it banked $10 million from venture capital firm Pitango Venture Capital . (See Convergin Raises $10M.)

The company's CEO Ayal Itzkovitz says the Series B money is for expansion, especially in North America. "We needed this round because we have to grow substantially to meet demand, to support our partners and customers."

Substantial for a small company such as Convergin, which currently has about 40 staff (mostly in Israel), means a headcount increase of up to 20 people initially, "and we can be more aggressive if needed," Itzkovitz tells Light Reading.

The company also plans to open a permanent office in the U.S. to house sales, marketing, and business development staff, though the CEO won't reveal just yet where that office will be located.

Increasing demand is not something that many companies are talking about just now -- witness the bombshell from Nokia Corp. (NYSE: NOK) today and this week's other downbeat announcements -- so why is demand rising for Convergin's technology exactly? (See Nokia Cuts Device, Networks Outlook, Orckit Hunkers Down, Axes 90 Jobs, BT Adds to Headcount Cull, Europe Hit With Big Telecom Jobs Cuts, and Nortel Culls 1,300 Jobs, Loses $3.4B.)

NGN migration sweet spot
The company is one of a number of specialists that have developed service mediation and protocol conversion nodes that enable network operators to use their existing network systems alongside new SIP-based platforms so that legacy and new, IP-based services can be delivered across old and new infrastructures without the need to re-engineer applications or replace existing network elements.

In other words, they allow carriers to continue offering their existing services and introduce new ones, while migrating to next-generation network (NGN) systems.

Basically, these nodes, also known as service brokers or service orchestrators, enable the convergence of legacy and new networks and services, and that makes them vital elements in network-migration strategies. (See Network Service Brokers and Service Orchestration.)

According to a recent Light Reading Services Software Insider report, Combining Telco Services: The Network Service Broker Opportunity, there are four types of service broker, one of which is a Service Capability Interaction Manager (SCIM). This type of broker supports the "triggering of IMS (IP Multimedia Subsystem) and service platforms," the report states.

Convergin's service broker, the Accolade Wireless Convergence Server (WCS), is an SCIM, and while its name suggests it has been developed specifically for wireless networks, it can be used in any type of service provider infrastructure. (See Convergin Takes on IPTV and Look, Aint Bea! They Convergin!.)

Itzkovitz says demand has been growing for such products as operators start to implement their migration strategies and introduce new platforms into their networks. He also believes that service orchestration capabilities will continue to be in demand, as operators will want to continue developing and deploying new services even if they reduce their investments in large NGN projects (to preserve cash) in the short term. The CEO says Convergin's partners, which include Ericsson AB (Nasdaq: ERIC) and Nortel Networks Ltd. , are actively engaged in trials and RFPs (request for proposals).

According to the Services Software Insider report, AT&T Inc. (NYSE: T), Embarq Corp. (NYSE: EQ), Sprint Corp. (NYSE: S), Telefónica SA (NYSE: TEF), and Telecom Italia Mobile SpA (Milan: TIM) are just some of the operators that have issued RFPs for service broker technology.

And there's clear evidence that service brokers are being actively deployed: Earlier this week, one of Convergin's main rivals, Alcatel-Lucent (NYSE: ALU), landed a deal with Telefónica to provide various elements of its visual messaging application, including its 5105 Video Mailbox and 5150 Messaging Application Broker. (See Telefónica Gets AlcaLu's Message.)

Next Page: Building Broker Business.

Building broker business
Itzkovitz says Convergin also has carrier business, claiming the Accolade WCS has been deployed in more than 15 networks, in the U.S., Canada and Europe, including some major deployments involving millions of users.

"We'll be reaching 20 customers soon," he adds, though says he currently can't name any of the users.

And while he won't divulge details, the CEO claims the company is profitable, with revenues approaching double-digit millions of dollars.

"There are many more opportunities we can address and build market share" using the new funding, says Itzkovitz. "We aim to be the leader in the service broker market... the service broker will be a critical part in any network," he says, adding that the startup is also constantly developing and adding new capabilities to its platform. (See Convergin Enables Chargin.)

That's all very well, but there are a number of other service broker players with the same ambitions. Apart from AlcaLu, Itzkovitz identifies specialists such as Aepona Ltd. and jNetX Inc. as rivals. (See Aepona Expands for Telco 2.0 Assault and Mobilkom Uses jNetX.)

And there's more. AppTrigger Inc. has its Application Session Controller (ASC) deployed in 10 Tier-1 carrier networks, including Telefónica UK Ltd. , while OpenCloud Ltd. has deployments at Telefónica, Vodafone España S.A. , and PT Telekomunikasi Selular (Telkomsel) , among others. (See AppTrigger Intros Advantage Program, AppTrigger Updates ASC, Unisys Aims, Pulls AppTrigger, and OpenCloud Raises $10M .)

And with the brokering capability so critical in NGN migration strategies, a number of other bigger players are also active in this niche, including Ericsson AB (Nasdaq: ERIC), Huawei Technologies Co. Ltd. , IBM Corp. (NYSE: IBM), Motorola Inc. (NYSE: MOT), and Tekelec . (See Motorola Jumps on Leapstone and Vendors Take On Service Management.)

Itzkovitz isn't deterred by the competition. He believes Convergin's approach, which includes support for Java Enterprise Edition (JEE) SIP Server environments running on Java Specification Request (JSR) 116 or JSR 289, helps differentiate it from many rivals. "Others have a more legacy approach to services in Java," he claims, while Convergin's standards-based approach will appeal to more service providers.

At the very least, it looks like Itzkovitz has enough funding and ongoing business to last out the downturn and find out if he's right.

— Ray Le Maistre, International News Editor, Light Reading