Kleiner Readies BBO's Rebirth

Some of the CLEC's assets are being siphoned into Zephion, a planned long-distance operator

February 15, 2001

4 Min Read
Kleiner Readies BBO's Rebirth

Kleiner Perkins Caufield & Byers's efforts to build a new carrier out of a challenged CLEC are coming to a head.

Several weeks ago, Light Reading reported that Kleiner Perkins was siphoning some of the engineering talent and other assets from BroadBand Office Inc. (BBO), a competitive local exchange carrier servicing office buildings it funded (see Kleiner Perkins Builds Backbone Carrier ). The venture firm's plan was to form a new carrier, code named Domino, that would sell IP-based services to corporations and other carriers.

Since then, Light Reading has learned that Domino has a new name, an old CEO, and a Website detailing some of the services it plans to offer. What isn't clear is what kind of future that leaves for BBO, whose business is in a category of companies that's fallen out of favor with public and private investors.

Sometime in the past few weeks, Domino shed its code name in favor of a new moniker, Zephion. It also hired former UUNet president Heidi Heiden out of retirement as its interim CEO. Heiden, 61, has enjoyed a telecom and networking career spanning four decades. His previous positions include serving as UUNet's senior vice president of operations and technology and as Salomon Brothers' senior operating officer.

UUNet's former top sales boss, Clint Heiden, has joined Zephion to lead its sales efforts in the U.S. Zephion's founder and president is another long-time UUNet exec, Johnson Agogbua.

Heiden's hire and Zephion's Website launch hint that the company may be close to announcing something soon. Indeed, Zephion might be about to use Heiden's reputation to help seek funding or, perhaps, make a publicity splash.

One source with knowledge of Zephion's plans suggests that Heiden won't be out of retirement for very long. "Heiden has joined [Zephion] but it's not a permanent gig. It's on an interim basis. He may have just joined as a favor for Johnson [Agogbua], taking the job while the company conducts a more exhaustive CEO search," says the source, speaking under the condition of anonymity.

Staying power is also an issue for Broadband Office, which was started by Kleiner Perkins along with several commercial real estate firms. Located less than a mile away from Zephion's Falls Church, Va., offices, BBO is becoming little more than a building-centric reseller for IP services offered by Zephion, sources say. One source, a venture capitalist, says Zephion was formed to "jettison the doomed BBO and try and salvage some of its value."

A BBO spokesperson, via email, had this to say about Zephion's birth: "Zephion's formation came as a desire to put some of BBO's assets into an independent vehicle to grow along its own trajectory and to better position it to acquire customers and further develop its team and capabilities."

In other words, BBO's building-centric business model was too confining and, given the economic woes of late, a hard sell to investors. A similarly styled CLEC, Dallas-based Allied Riser Communications Corp. (Nasdaq: ARCC), has seen its stock drop more than 90 percent in one year.

Another reason Kleiner Perkins formed Zephion, sources say, was so it could get revenue out of BBO's assets without sharing the wealth with BBO's commercial real-estate investors, which supposedly haven't lived up to their promise of providing BBO with a steady flow of customers.

Whatever the case, BBO stands a better chance of survival as a reseller of Zephion's services, rather than owning and running its own network.

But given the recent failure of AduroNet Ltd., which has a business model similar to Zephion's, Zephion is starting down a tough road, too (see AduroNet Goes Bust).

Its job will be to sell Internet access, virtual private networks, IP telephony, and other services to businesses and carriers. Zephion boasts having "the only national MPLS-enabled IP network," which, theoretically, will let Zephion have better control of the quality of the bits that traverse its network.

An employee at Zephion told Light Reading today that the firm now employs "less than 300 people."

Kleiner Perkins's Vinod Khosla, who serves on the boards of BBO and Zephion, has his work cut out for him as Zephion prepares to strut into the public spotlight. Along with keeping both providers funded, Khosla must make sure that BBO and Zephion are perceived as different animals, despite coming from the same litter.

"[Zephion] will have a challenge because they will be perceived as an [IP services] specialist with BLEC partners, which isn't terribly compelling," says one industry analyst. "[Zephion's] services are very compelling, I think, but the business may not succeed."

Kleiner's Khosla and Zephion's Heiden did not respond to requests for comment. A BBO spokeswoman, when contacted, had limited information and no way to reach the firm's executives.

-- Phil Harvey, senior editor, Light Reading http://www.lightreading.com

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