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Pannaway Puts $15M Away

In an industry full of one-box, all-services access startups, there's a lot that's different about Pannaway Technologies Inc. For starters, the company is announcing a $15.6 million funding round today, bringing the total amount raised to date to $56.1 million.

Rather than relying on venture capital firms and banks, Pannaway is 100 percent backed by private investors. Its largest investor is Bob Levine, founder of the former Cabletron Systems, who owns more than 60 percent of Pannaway. The company's other investors include Worcester, Mass., attorney Sumner B. Tilton Jr. and Carl P. Sherr, the head trader for a Worcester-based brokerage.

Pannaway says it is debt-free, a nice perk for a privately held company. "When we take a $15 million round, we can actually invest that amount into our business," says Dale Allaire, Pannaway's director of marketing communications.

The company also is adamant about selling directly instead of going through distributors. Its executives maintain that this helps Pannaway to get more involved in its customer deployments and, in turn, helps them build loyalty for future access equipment purchases.

Indeed, Pannaway doesn’t just drop off a box and run. It goes so far as to help carriers market their IP-based services to their customers -- a roundabout way of building more demand for Pannaway gear down the road.

Another way Pannaway sets itself apart is that the company is not a one-box solution. Though small, the company addresses every point of the access network. The two primary components of its access menu are its broadband access switch (BAS), which is an ADSL2+ aggregator and digital loop carrier, and its broadband aggregation router (BAR), which replaces a DSLAM and ATM-to-IP gateway and manages the converged traffic of up to 11 BAS devices. Here's a quick rundown of the different flavors of the BAS product line: Table 1: Pannaway's BAS Products
Part number Port Count ADSL2+ POTS Integrated Splitters
BAS-ADSL16R 16 Yes Yes Yes
BAS-ADSL32R 32 Yes Yes Yes
BAS-ADSL16R-DMS 16 Yes No No
BAS-ADSL32R-DMS 32 Yes No No
BAS-ADSL48R 48 Yes Yes Yes
BAS-ADSL48R-DMS 48 Yes No No
BAS-ADSL48R-SPL 48 Yes No Yes
BAS-POTS48R 48 No Yes No
Source: Pannaway Technologies, Light Reading


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With those small form-factor, small line-count devices, Pannaway is chasing a logical market -- the rural independent operating carriers, of which there are about 1,100 in the U.S., each serving anywhere from 5,000 to 30,000 access lines.

Finally, Pannaway sells IP-based systems, which is totally the norm now, but was a bit "out there" when Pannaway was founded in April 2002. "It was a little risky, but it turned out to be great timing for them," says Yankee Group analyst Matt Davis.

"Calix was built... to deliver big video. Occam had the small form factor but was one of the first VOIP guys to market. Pannaway was founded as an IP-based system with strong voice features and a migration path to video," Davis says.

Strong voice features? Oh, yes. In the rural IOCs, voice is still king and little innovations can go a long way -- especially if it allows for better quality service while migrating to an all-IP network.

One example: Pannaway touts its locally derived dial tone, which it generates at the customer premises rather than at the carrier's remote terminal or central office. In IPTV deployments that can be a big deal as it eliminates "ring trip," a noise blip created on ADSL lines when a phone connected to the line rings and is answered.

Ring trip over a telecom carrier IPTV connection can cause a few frames of a TV picture to be pixilated or dropped altogether. But Pannaway's method of eliminating ring trip, the company says, doesn't reduce the ADSL line's bandwidth, as do other methods, such as increasing the ADSL line's signal-to-noise ratio. That allows the service provider to support more set-top boxes per line at greater distances -- giving it more revenue per household.

That kind of small leap forward is a big deal to carriers that are in the throes of watching their government subsidies evaporate and their markets challenged by VOIP providers and satellite TV companies (see Rural Carriers Circle the Wagons).

"We felt the IOCs were going to be caught in a much more disruptive space in the next few years," says Mike Skubisz, Pannaway's CTO. He says the company has 21 commercial deployments so far and about as many customer trials. It also began its first field trial in Russia recently, and anticipates sending gear to India for a customer trial sometime later this month.

Pannaway's competition, besides Calix and Occam, includes Allied Telesyn International Inc., Zhone Technologies Inc. (Nasdaq: ZHNE), TelStrat International, and, at larger carriers, Alcatel (NYSE: ALA; Paris: CGEP:PA) and Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA).

— Phil Harvey, News Editor, Light Reading

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FREDLOOS 12/5/2012 | 3:02:37 PM
re: Pannaway Puts $15M Away Pannaway cannot keep a customer happy and lose accounts to others on a regular basis. Their product as several terminal flaws, the most important being that it is based upon an edge router that is not carrier class. The amount of unneeded complexity this architecture demands will doom them forever. Let me ask you a simple question: Does the world need a new edge router? If you had to choose an edge router to form the core of your access network, would you deploy a new one that has less than one or two thousand shipped or one from cisco, juniper, foundry, extreme? The next problem they have is that their market is gone, the ILECs have chosen their next platforms with roughly 50-70% of them already in either the ATM camp or the BLC IP camp. Pannaway will never, ever displace Occam in their accounts so that leaves Pannaway to displace Calix or Tellabs. Has not happened yet despite very aggressive sales efforts. Its desparation time folks.
shaggy 12/5/2012 | 3:08:36 AM
re: Pannaway Puts $15M Away But it's spelled Worcester. Worchester is that sauce Yosemite Sam puts on his steaks....
Larry, Monkey 12/5/2012 | 3:08:36 AM
re: Pannaway Puts $15M Away Thanks. A well picked nit.
palaeozoic 12/5/2012 | 3:08:34 AM
re: Pannaway Puts $15M Away Now that the door is open on nit picking...

"Pannaway says it is debt-free, a nice perk for a privately held company."

Virtually all private startups are debt free. That's because no one will lend them money. Which is why the VC industry exists.

"...we can actually invest that amount into our business..."

As opposed to what? Give it to Uncle Bob so he can buy another Sherman tank.

Must have been a slow news day, Phil.
DCITDave 12/5/2012 | 3:08:33 AM
re: Pannaway Puts $15M Away I thought it was worth noting.

A few years ago some startups so in debt with corporate credit lines, credit cards, and other debt financing that they'd use the first few bucks of their VC funding to pay old bills.

ph
lilgatsby 12/5/2012 | 3:08:32 AM
re: Pannaway Puts $15M Away Nice...hadn't heard reference to the tank in awhile.

- There's a reason Bob is the lead in every round, and don't be surprised if the other fellows are his personal bankers.

- This looks pretty vanilla...not seeing a big differentiator aside from the earth shattering dial-tone. Maybe they should bundle it with a mini-MMAC.

- Lastly, I hear they have sales guys jumping ship left and right...maybe those "25" trials is more like 2 with free hardware.

lg

--------------------------------------------
palaeozoic:

Now that the door is open on nit picking...

"Pannaway says it is debt-free, a nice perk for a privately held company."

Virtually all private startups are debt free. That's because no one will lend them money. Which is why the VC industry exists.

"...we can actually invest that amount into our business..."

As opposed to what? Give it to Uncle Bob so he can buy another Sherman tank.

Must have been a slow news day, Phil.
Upside_again 12/5/2012 | 3:08:32 AM
re: Pannaway Puts $15M Away who humilated and for show had fired a sales guy on stage in front of everyone and said salespeople are the laziest group of people he ever knew and they should get quota's of 300%. I heard one of them was a real winner....any other stories?
alchemy 12/5/2012 | 3:08:31 AM
re: Pannaway Puts $15M Away GreyPonyTail writes:
Sales guys don't jump ship when they are doing thier job. They either miss numbers and leave or are told to leave after botching deals only to be picked up by more desperate companies. That's anywhere!

In my experience, it's often the case that the sales guys get blamed when the company doesn't make numbers. The actual problem is often a product that isn't ready for market yet or that isn't competitive.

Telco triple play is an incredibly crowded field with a number of 800 pound gorillas competing for the large accounts. A rural telco strategy is a good way to get your startup dumped to a bigger fish for the price of the venture capital liquidation preferences. Tekelec bought SanTerra and Taqua on the cheap and DCL bought MetaSwitch on the cheap. The rural market just isn't big enough to create enough value to justify all that venture capital investment. If you can't land a Verizon or an SBC, it's tough to build value.
GreyPonyTail 12/5/2012 | 3:08:31 AM
re: Pannaway Puts $15M Away Rural ILEC's are getting slammed on all directions with Cable and Satellite providers moving in and taking away subscribers. Pannaway gives them a chance to reclaim their edge delivering triple, even quad play services using SIP, QoS and IP technology. Sure the old Bob and Craig show years ago was a time of "interesting" stories depending on what side of the story you were on. I would look at personal maturity, quality senior leadership, learning from making mistakes in the past and some solid technology today to count Pannaway as a real threat to thier competition and a real solution to thier customers.

Sales guys don't jump ship when they are doing thier job. They either miss numbers and leave or are told to leave after botching deals only to be picked up by more desperate companies. That's anywhere!
materialgirl 12/5/2012 | 3:08:29 AM
re: Pannaway Puts $15M Away Isn't the rural market going WiMax anyway?
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