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Cable/Video

Alloptic 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

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BobbyMax 12/5/2012 | 12:13:43 AM
re: Alloptic Scores $35M The PON Technology has been known for the last 10-12 years. RBOCs did not embrace this technology and there is no likelihood of its adoption. May be some small municipalities. where there are no broadband service available, the EPON technology may be helpful.

There is no interdepedence between the VC funding and the technology deployment.
MikeBroadband 12/5/2012 | 12:13:42 AM
re: Alloptic Scores $35M Compared to Point-to-point Ethernet is PON still too expensive.

FTTH project are being build with the following investments:

Passive (fiber, ducts): 600-1000 usd/homes passed
Active (equipment): 400-600 usd/homes passed.

This is one pair/fiber per homes passed (ie not PON)

PON equipment is hard to find below 2000USD per homes passed.

Not until PON equipment comes down below 1000 USD per homes passed will there be a real business case for it.
rjmcmahon 12/5/2012 | 12:13:39 AM
re: Alloptic Scores $35M Not until PON equipment comes down below 1000 USD per homes passed will there be a real business case for it.

If PON equipment were free, there still would be no business case for it.

The only "business case" for PON is to get a bunch of foolish Wall St. con artists involved in the stealing of retirement funds from unsuspecting 401K investors.

It's sad to see this game is still being attempted. Haven't we learned our lessons?
DKP 12/5/2012 | 12:13:29 AM
re: Alloptic Scores $35M
>The only "business case" for PON is
> to get a bunch of foolish

Talk to Service Providers - that is what counts at the end of the day, not your opinion. The RFIs and RFPs are coming from SBC, BellSouth, NTT, France Telecom, Chunghwa, China Netcom, Korea Tel, BT, etc. They are the drivers, they understand outside plant operation and maintanance costs... it has nothing to do technology, and everything to do with cost and business models. EPON will eventually grab a significant chunk of fiber access.



Ether-Freak 12/5/2012 | 12:13:28 AM
re: Alloptic Scores $35M EPON is much cheaper than competitive active solutions (from a capital as well as operating cost perspective). When you take into the count the required active concentration node sites that require powering, pedastals, fiber patching capabilities, and with some active vendors, requiring HVAC type enclosures due to non-hardened equipment. These systems also require more fiber (2 to 3 fibers per customer premise) which equates to higher costs in fiber and splicing.

The advances of EPON over APON continue to lower costs, due to Ethernet transport as opposed to ATM transport. EPON provides higher symmetrical bandwidth with CoS/QoS at layer 2 (min & max rates) in both directions. Providing SLA's are important to Telcos along with Municipalities that desire to provide a true "Open Access" platform.

I believe Alloptic also supports TDM (DS-0 & DS-1 with 3/1/0 DACs grooming) capabilities which allow their business access ONU's to handle most voice applications as well. Most active point-point solutions do not support TDM traffic (DS-1 & DS-0) transparently without utilizing another vendors external equipment.

strands555 12/5/2012 | 12:13:26 AM
re: Alloptic Scores $35M re: "Talk to Service Providers - that is what counts at the end of the day, not your opinion. The RFIs and RFPs are coming from SBC, BellSouth, NTT, France Telecom, Chunghwa, China Netcom, Korea Tel, BT, etc. They are the drivers, they understand outside plant operation and maintanance costs... it has nothing to do technology, and everything to do with cost and business models. EPON will eventually grab a significant chunk of fiber access. "


I find it depends who, specifically, you talk to within given service providers. Several of the names in your list have groups working different angles (APON, EPON, active Ethernet). FTTH is definitely not a strategic priority for US RBOCs, but it is for, for example, NTT. NTT is divided on the PON vs active question, roughly across the NTT-East NTT-West lines. Overall in japan, active solutions dominate. China is also a mix of opinions, but my sense is a leaning towards active, fiber to a switch in "the basement" of the multi-tenant-dominated residences. I believe even US RBOCs will be open to active FTTH sales pitches than can show a better value, but I still believe they'll go VERY slow until someone else proves out the biz case beyond a shadow of a doubt.

Also, not so sure anyone REALLY understands OSP OpEx and maintenance costs for PON. Just not enough deployments or stability/history across the equipment yet.

EPON may no longer be able to use the "E" by the end of the year, once it gets to sponsor ballot. Let's face it...it's not Ethernet, it's a totally different MAC and supplemental communications that are not present in any other Ethernet. All the work that has gone on in 802.3ah would continue, but moved to a new designator like 802.22 or 23. That may or may not affect its longer-term viability, since as you say the cost is the biggest issue. However, there are MANY system issues that are not being addressed (and will not be addressed since out of scope) in 802.3ah. It (EPON) won't be ready for prime time as a standardized, system-level product for a couple years yet.

loose_photon 12/5/2012 | 12:13:25 AM
re: Alloptic Scores $35M > The PON Technology has been known for
> the last 10-12 years. RBOCs did not
> embrace this technology and there is
> no likelihood of its adoption.

Ethernet has been known for the last 30+ years, yet only few years back there was enough interest from various carriers for IEEE to form "Ethernet in the First Mile" task force. Why? The technology is changing, the demand is changing, and the carriers are looking for lower cost per bit.

> May be some small municipalities. where
> there are no broadband service available,
> the EPON technology may be helpful.

No self-respecting carrier would do anything with EPON before standard is complete. (Though, most of them have EPON trials to study the technology.) As the 802.3ah nears completion we'll see more activity in this area.


I agree that "There is no interdepedence between the VC funding and the technology deployment".

LP
strands555 12/5/2012 | 12:13:25 AM
re: Alloptic Scores $35M re: EPON is much cheaper than competitive active solutions (from a capital as well as operating cost perspective).

BULL!
Active solutions have beat the socks off PON solutions in head-to-head deployment bids in various parts of the world. In fact a majority of the deployments in all parts of the world except the US are going with active solutions. By the end of this year or early next year, the same will be true in the US. There will be more contracted FTTH endpoints, that is. Raw number of deloyments probably still favor PON in '04 (for the US) because there are quite a few small ones already on the books.

Having said that, it depends on many factors. What those factors are will vary from deployment to deployment. There are and will continue to be deployments that are specified in such a way that PON is competitive with active.

Ultimately, the horse that pulls away will depend on what business models prove to be successful more than anything. If constrained "replicate what we have now" models dominate, PON may win (though even that isn't certain). If more open, growth-oriented models that favor dedicated connectivity for peer-to-peer, VoD, PVR, IP telephony, and various other dedicated services and content are the dominant biz models, active switched depoyments will win out. I'd put my money on the latter. Time will tell.
strands555 12/5/2012 | 12:13:24 AM
re: Alloptic Scores $35M re: Ethernet has been known for the last 30+ years, yet only few years back there was enough interest from various carriers for IEEE to form "Ethernet in the First Mile" task force.

Actually, interest from carriers had little to do with the formation of IEEE's Ethernet in the first mile. Carriers had little involvement in it until about a year and a half ago or so (i.e. they were notably absent until late 2001). I've heard stories (coerced by alcohol) that even that involvement was more to disrupt it than to help it along.

Much of the debate within 802.3ah has centered around not listening to carriers "requirements," or just listening to US carriers. It's just not a solution that legacy carriers can love. I know of no top-tier carriers that have openly expressed a dedication to carrying through with it and deploying it, regardless of their "participation" in the IEEE groups.
loose_photon 12/5/2012 | 12:13:24 AM
re: Alloptic Scores $35M > China is also a mix of opinions, but my
> sense is a leaning towards active, fiber
> to a switch in "the basement" of the
> multi-tenant-dominated residences.

Who cares about multi-tenant residences? Let SARS run free for couple more month there won't be any.

> EPON may no longer be able to use
> the "E" by the end of the year, once
> it gets to sponsor ballot.
> Let's face it...it's not Ethernet, it's
> a totally different MAC and supplemental
> communications that are not present in
> any other Ethernet.

Watch your mouth, Mister! P2MP STF worked very hard to avoid making any changes in Clause 4. So it is the same MAC. Additional protocol is implemented as MAC Control function. I don't think EPON will lose its "E".

Cheers,
LP
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