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Astral Point Plays Survivor

A $100 million deal with Time Warner Telecom is just what the IPO bankers ordered: Was equity involved?

October 17, 2000

2 Min Read
Astral Point Plays Survivor

"How'd they get that deal?"

That's the big question following Astral Point's announcement of a $100 million dollar contract with Time Warner Telecom Inc. (Nasdaq: TWTC). The deal has not only increased the company's acquisition value, but now makes an IPO more feasible. Astral Point is said to be exploring both options (see Astral Point Explores Its Options).

Time Warner will purchase $100 million of Astral Point's optical network equipment, including the ON 5000 Optical Services Node, over a period of several years, according to the companies. Time Warner will use the equipment to manage data sevices at speeds of OC3 to OC48. The environment is primarliy Sonet, with DWDM (dense wavelength-division multiplexing) integation planned for the future, according to Bob Meldrum, director of marketing and communications with Time Warner Telecom.

Neither company would comment on whether there is an equity relationship between Time Warner and Astral Point. Many startups have been using equity and stock warrants to draw new customers in an increasingly competitive market. Carriers can then use the investment to cover the expense of the equipment. If a supplier makes it to IPO, the gains in the equity investment can exceed the amount of the contract.

"Occasionally, we make investments in suppliers," said Meldrum. "But we can't comment on our investments."

The announcement caught some by surprise, given the crowded and cutthroat nature of the metropolitan optical market. Several well funded and aggressive public companies, including Cisco Systems Inc. (Nasdaq: CSCO), ONI Systems Inc. (Nasdaq: ONIS), and Redback Networks Inc. (Nasdaq: RBAK), already have paying customers for their metro optical products, and dozens of private companies are fighting for revenues.

"I'm surprised at this," said Ron Kline, analyst with RHK Inc.. "I think this firmly implants them as a contender. They've got to get in the game, because everybody is chasing [Cisco's] Cerent. There are a lot of people pussyfooting around, talking about customers, but this is real money."

Some analysts, however, claim they were expecting a deal.

"Astral Point has been working with Time Warner for some time. It helps when service providers and vendors work together early on in the process so that the vendor can determine the direction of the product," says Chris Nicoll, vice president with Current Analysis, a market research firm.

Bill Mitchell, vice president of marketing with Astral Point, says that the company will start realizing revenue from the deal "very soon." He did not disclose how much would be realized this year.

-- R. Scott Raynovich, executive editor, Light Reading http://www.lightreading.com

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