Photuris & SBC: The Inside Story

Of layoffs, leaked memos, and the $50 million deal that wasn't...

March 31, 2004

5 Min Read
Photuris & SBC: The Inside Story

The mist is lifting on what's happening at SBC Communications Inc. (NYSE: SBC) regarding its RFP for reconfigurable optical add/drop multiplexers (ROADMs) -- and how those developments triggered the effective closure of startup Photuris Inc. at the end of last week (see Photuris Is Finished).

The closure was triggered by "negative news" from one of the three RBOCs that were evaluating Photuris's metro box, according to Ashish Vengsarkar, founder and VP of product management at Photuris. Vengsarkar declined to name the RBOC in question but Light Reading has confirmed that it was SBC.

It's become clear that the negative news for Photuris wasn't accompanied by positive news, a contract win, for another vendor. Instead, Photuris was told that it hadn't made it onto a shortlist of suppliers whose products will now undergo further extensive evaluation by SBC, in a process that might take several more months.

Word has it that three parties have made it onto this shortlist. One of them is a partnership of Tropic Networks Inc. and Alcatel SA (NYSE: ALA; Paris: CGEP:PA) -- a partnership that Tropic declines to confirm or deny.

The other shortlisted bidders are a still a matter of guesswork. It's known that SBC has asked startups in this field to form partnerships with its existing suppliers -- and that was Photuris's undoing. Sources close to Photuris say the company tried to swing a deal with UTStarcom Inc. (Nasdaq: UTSI), but SBC got tired of waiting and, last Thursday, pulled the plug. Within a few hours, staff at Photuris were told the game was over, the money had run out, and they should go home on unpaid leave.

This would be just another case of a startup failing to make a shortlist with an incumbent carrier if it weren't for one thing: SBC had been testing Photuris's product in its Austin, Texas, labs for the best part of a year, in advance of testing any other vendors' products.

"They truly loved it. The RFP was written exactly to match the features and functionality of the Photuris box. I have never seen anything like it. Photuris was able to answer positively to almost every RFP item," says a source, who requested anonymity. This tallies with other reports of a striking resemblance between SBC's RFP and Photuris's product spec.

The contract, said to be worth at least $50 million a year, was Photuris's for the taking, so long as it could find a partner -- and it failed to do so.

UTStarcom declined to comment on whether it had discussed a partnership with Photuris. Vengsarkar says UTStarcom and Siemens Information and Communications Networks Inc. were leading prospective partners, but refuses to discuss any of the RBOC trials Photuris was involved in, citing non-disclosure agreements. SBC also declines to comment.

All the same, Light Reading has obtained a memo that Vengsarkar sent staff yesterday, March 30, which confirms the version of events given by our anonymous sources. Here's what it says:

  • All

    This is a tough email to compose.

    Since UTSI is not interested after the SBC decision,my worst-case scenario has unfolded - we are nowtalking to companies who will be interested in piecesof the business (some are interested only in theVersicolor, others in the Transponders and Software,only a couple who may consider the whole product butmay not be able to act fast enough to make adifference). In any case, we don't expect awhole-scale re-hiring of our talent. I am pained bythis outcome.

    We have built a great product - I have not had thepleasure of being surrounded by such a talented anddedicated group of individuals ever before. Weexcelled in technology innovation, product developmentand hitting the right features & cost-points. GivenSBC's feedback that we nailed the RFP on thetechnical, economic and operational aspects, I feelgood that we had something solid to offer customers.The fact that such a comprehensive piece of work isnow being broken down into piece-parts breaks my heart(even as I feel proud of our accomplishments). For awhile I truly thought that we had planted a Chinesebamboo tree (no growth for four years, then a tinyshoot appears, and in the fifth year it grows eightyfeet). Unfortunately for us, we didn't get a fifthyear.

    We made mistakes and I take responsibility for them.In hindsight, we could have done a better job onmarketing and sales, partnerships and business deals,maybe more push on generating small revenues (a laTAMU), and more intensity in developing higher-upconnections in our customer base. These are lessonslearned and we will do better the next time around.

    Most importantly, through this note, I want to thankall of you for sticking with this effort until the end- I know you feel proud of what we have built and weshould carry this pride to our next steps in ourcareers.

    If there is anything I can do for you, please let meknow. If the opportunity arises, I would love to workwith every one of you again.


[As of this writing, Vengsarkar would neither confirm now deny that he had written the message above.]

As for the other bidders shortlisted for the SBC RFP, it's likely that one pair is Lucent Technologies Inc. (NYSE: LU) and Movaz Networks Inc., although some sources say Movaz's product targets edge applications and isn't really comparable with the ones from Photuris and Tropic.

Among SBC's other suppliers, Fujitsu Network Communications Inc. (FNC) has a product, although it's "somewhat weak in ROADM function," according to a consultant familiar with the SBC RFP, who requested anonymity. Cisco Systems Inc. (Nasdaq: CSCO) and Nortel Networks Corp. (NYSE/Toronto: NT) have products on the drawing board. "They're trying to stall the RFP until their slideware becomes real," the consultant adds.

Light Reading's sources say the Photuris equipment was in trials at Verizon Communications Inc. (NYSE: VZ). Verizon was also insisting that Photuris find a partner, and there was an additional complication -- a long-term contract with Lucent for its EON product.

The same sources say trials with BellSouth Corp. (NYSE: BLS) had started in November or December of last year. Other carriers that have tested Photuris's product include WorldCom Inc. and Time Warner Inc. (NYSE: TWX).

— Peter Heywood, Founding Editor, Light Reading

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