Access equipment maker Mahi Networks Inc. acknowledged Friday that it has been working on a technology solution with White Rock Networks. Both companies, however, deny recent rumors that Mahi is close to acquiring White Rock.

"We have been working with White Rock on a very specific application for a very specific customer," specifies Ron Longo, Mahi's VP of sales and marketing. Both Longo and Andrew Knott, White Rock's VP of marketing and customer service, say that there have been no merger discussions between the two companies.

The M&A rumors began circulating after White Rock's most recent layoff, which involved 25 percent of its staff (see More Startup Setbacks in Texas). Several top White Rock managers were among those let go, including Tony Masella, White Rock's founder and chief operating officer; Steven Clendening, VP of product planning; and Ron Kelley, VP of sales.

While staff cuts are a fact of life among telecom equipment startups these days, the breadth and depth of White Rock's cuts, to some, suggested it may be thinning its management in hopes of an upcoming merger.

Adding fuel to the rumor were the common board-level threads between the two startups. White Rock and Mahi share a board member in Bandel Carano, a general partner at Oak Investment Partners. Also, White Rock's remaining founders -- CEO Lonnie Martin and VP of engineering Greg Lowe -- used to work for Bill Cadogan when he was chairman and CEO of ADC Telecommunications Inc. (Nasdaq: ADCT). Cadogan is now a general partner with St. Paul Venture Capital and a director at Mahi. St. Paul led a syndicate of 12 private equity firms in Mahi's latest funding round, a $75 million round announced in June (see Mahi Gets a Fresh $75M).

White Rock acknowledges that it did let go several senior staff but says it's not because it's shaping up for a Mahi marriage. "It's very simple," says Knott. "When you have a smaller infrastructure you need fewer senior people."

"I'm not aware of any discussions on the M&A front at all," he says.

Knott did confirm, however, an early report that Pat Rockford has joined White Rock as its new VP of sales.

What remains unknown is what Mahi and White Rock are working on and for whom.

One source suggests that Qwest Communications International Inc. (NYSE: Q), allegedly a Mahi customer, has asked Mahi to offer T3 interfaces in its access switch, which is designed to aggregate Sonet and Gigabit Ethernet within a metropolitan area's largest points of presence. "This is something White Rock can offer using its VLX2010 OC48 Sonet add/drop multiplexer [ADM] with a DS3 tributary," the source says.

By working with specific access vendors, Mahi could guarantee data communications channel (DCC) interoperability in a carrier's network and provide a solution that provisions, manages, and monitors circuits from the access ring through to interoffice facilities, says one industry analyst, who wished to remain anonymous.

Of course, Mahi is careful not to appear too cozy with White Rock, since it must also work closely with legacy ADM suppliers that are already installed in carrier networks. Another industry source says Mahi and Fujitsu Network Communications Inc. (FNC) have an agreement whereby Fujitsu would introduce Mahi to its accounts and use Mahi's access box as a headend to aggregate traffic going to Fujitsu metro ADMs.

The point is that, while Mahi maybe working with White Rock, anchoring itself to another startup would be cutting off its nose to spite its face. "We're using [White Rock] for a very specific, niche application," says Longo.

— Phil Harvey, Senior Editor, Light Reading
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