Alloptic Scores $35MAlloptic Scores $35M

Alloptic Inc., a vendor of access gear based on PON (passive optical networking) technology, announced $35 million in new funding today (see Alloptic Reels In $35M).

This fourth round, anticipated earlier this year by Light Reading (see Alloptic, Salira Close to New Funds), was led by existing investors GMG Partners (formerly GMS Partners) and Athenian Venture Partners. It brings Alloptic's total funding to $80 million.

Alloptic says the money will be used to continue building the business. To start, the firm has hired two new executives -- Keith Zaky as VP of worldwide field operations, who spent over a decade in the messaging division of Lucent Technologies Inc. (NYSE: LU) and later worked at Persistence Software, an application server vendor; and Tom Warner as VP of engineering, late of Tut Systems Inc. (Nasdaq: TUTS). A third executive to help build Alloptic's business in the Asia/Pacific region is expected to be hired within two months, according to company spokespeople.

Alloptic's cash infusion is among the largest awarded to any optical networking vendor in recent months. It amplifies ongoing industry speculation about the potential of the market Alloptic's targeting.

PON uses passive optical splitters to siphon bandwidth from one lambda across multiple sites. Alloptic, along with rival Salira Optical Network Systems Inc., was among the first to base its PON on Ethernet instead of Asynchronous Transfer Mode (ATM), an approach that increases bandwidth but doesn't have the approval of the International Telecommunication Union (ITU).

All PON players, Alloptic included, maintain that business is brisk in fiber-to-the-home deployments in rural areas, and they say the enterprise market is sure to follow (see PON Believers Hang Tough).

But naysayers think there's little hope for a big push in PON -- and almost no hope it will ever take off in business applications. They point to the lack of incumbent interest and say the cost factors still don't make sense to RBOCs.

"Certainly, there's an increase in activity compared with a couple of years ago... [but] PON will always be a limited market," says analyst David Gross of Communications Industry Researchers Inc. (see CIR: Fiber-to-the-Hype). Gross says PON's point-to-multipoint topology just doesn't fit the point-to-point realities of most business fiber applications.

Alloptic is undeterred by such downplaying. "Our business will more than double this year," says CEO Mike Moone. Alloptic gear is live in six field trials across the U.S., he says, including one at a major ILEC that can't be mentioned. The latest quarter saw a record, nearly $1 million in revenue for Alloptic. New ASICs are bringing costs down further, he notes, and demand for video-on-demand will help drive Ethernet PONs into RBOC deployments.

Still, Moone admits it will be 2004 before Alloptic's profitable. And he acknowledges that "People's plans are more aggressive than their ability to raise capital." Also, he says the Federal Communications Commission (FCC) isn't the power behind PON that proponents once hoped it would be.

So who's right? Will PON be forever marginalized, or will it grab a sizeable share of the access market -- particularly in North America?

There's no easy answer. Only Optical Solutions Inc., the market leader, appears to be sustaining any kind of sizeable PON revenue stateside -- and that's almost exclusively due to rural telco sales. Alcatel SA (NYSE: ALA; Paris: CGEP:PA), is said to be making inroads, but the figures are tucked deep inside the big vendor's financials. Others, including Quantum Bridge Communications Inc. and Terawave Communications, which also got new funding recently (see Terawave's Hushed-Up Funding), are privately held, and there's diverse speculation on how they're really faring.

Clearly, Alloptic's funding points to the startup's faith that it can grab enough business to succeed. The news also demonstrates PON's siren-like fascination for many in the telecom industry, as PON continues to be discussed in access plans worldwide (see Pining for PON).

Certainly, PON isn't done evolving. Alternatives are continually sprouting -- not just ones like Alloptic's EPON, but also gear based on the legacy ATM approach (see Giga-PON Ships Quietly and FlexLight Bags $3M More). What's more, companies like Wave7 Optics Inc. are putting PON together with active parts to create new options (see Fiber to Home: Dream Deferred?).

Bottom line? It's too soon to call the demise of PON or to predict with any certainty its role in future access networks. As long as infusions like this continue, we'll keep writing this story.

— Mary Jander, Senior Editor, Light Reading