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Catena Cozies Up to RBOCs

Catena Networks Inc. announced today its first CN1000 next-generation digital loop carrier (DLC) customer, which seems to be good news. After all, how many startups get to boast of new customers and new products?

But the relatively small deal with the folksy Pineville Telephone Company pales in comparison with the bigger news. Between its two product lines, Catena now says it had deployed 1,000 of its products in various networks around the U.S. (see Catena Deploys 1,000th System) -- and many of these customers are the large, cash-cow RBOCs that ailing startups are targeting for revenue.

In fact, Gary Bolton, Catena's VP of product marketing, says that 80 percent of the company's deployments are in unnamed RBOC networks.

One of those unnamed networks, Light Reading has learned, is BellSouth Corp. (NYSE: BLS). Catena won't comment on BellSouth specifically, citing a non-disclosure agreement. However, a December 2002 story in Light Reading's Boardwatch notes that BellSouth has been rolling out DSL services by using Catena's CNX-5 product to upgrade its DLCs.

But first, a quick tech detour: DLCs are the gear in the subscriber access portion of the network that handles the digital multiplexing of telephone circuits. In other words, they extend the phone company's reach to areas outside of its central offices. And, interestingly, older DLCs aren't compatible with most flavors of DSL service.

Another detour: Jeff White, the BellSouth chap who commented in the Boardwatch article that named Catena as a customer, couldn't be reached. And, if you're keeping score, there are three BellSouth employees named Jeff White in the Atlanta 404 area code.

Back to our story: The CNX-5 is a line-card upgrade for old Lucent SLC Series 5 digital loop carriers. Each CNX-5 card delivers two lines of Plain Old Telephone Service (POTS) and two lines of ADSL services on any copper pair. Conservative carriers, such as BellSouth, can use such a card to add DSL services to their existing networks without tearing out any old boxes or losing any of their POTS lines.

Upgrading old Lucent Technologies Inc. (NYSE: LU) gear has evidently been a steady business for Catena, but it's a niche market all the same. The company's future rides on its CN1000 product -- a box that combines the functions of a DSLAM, DLC, and media gateway into a single platform. All that convergence lets service providers deploy integrated POTS and DSL services to their customer, via remote terminals and central offices.

Deploying full systems instead of line cards is a much bigger challenge, says Scott Clavenna, president of PointEast Research LLC and director of research for Light Reading. "I'd say that market opportunity is emerging in 2004 and, with operational experience and a limited footprint, they are in a good position to compete," he says.

Today Catena announced its first customer for its CN1000. The equipment maker says that Pineville Telephone Company, a municipally-owned carrier that serves about 2,900 customers in Pineville, N.C., near Charlotte, has deployed the box in order to migrate its voice services to an all-packet network.

Obviously Pineville is no BellSouth, but the fact that Catena has been able to get 1,000 products out the door is remarkable, given its competitors. The companies doing some, all, or more of what Catena is doing include Advanced Fibre Communications Inc. (AFC) (Nasdaq: AFCI), Alcatel SA (NYSE: ALA; Paris: CGEP:PA), Calix Networks, and Marconi plc (Nasdaq/London: MONI).

For the time being, Catena appears up to the challenge. It employs about 250 people and has raised about $192 million since it was founded in 1998.

Last year, the company went through a bit of a shift as it added new board members, changed CEOs, and reportedly thinned its ranks by about 50 people (see Costello Chairs Catena, Catena's Picking a New Top Dog, Prabhu Joins Catena Board, and Headcount: Scary Times Continue). Its CN1000 product first became generally available in September 2002, and the company hopes that the Federal Communications Commission's recent broadband relief might make it easier for RBOCs to spend on network elements that allow them to deliver DSL services efficiently and cheaply.

It's a nice thought, but RBOCs are still taking a wait-and-see approach (see Will RBOCs Spend More on Broadband?). Some of them might even think that just because a startup makes a good sparkplug, that doesn't necessarily mean it can build the whole car. Stay tuned.

— Phil Harvey, Senior Editor, Light Reading

louisville 12/5/2012 | 12:30:42 AM
re: Catena Cozies Up to RBOCs Catena has sold 1,000 "products" or "systems". Guess here is that the majority of these "products" or "systems" are line cards for existing SLCs. If the estimated sales price per card is $500 then they've really only had about $500K in revenue, certainly not the type of revenue stream that will anytime soon substantiate invested capital.
litewatch 12/5/2012 | 12:30:39 AM
re: Catena Cozies Up to RBOCs It's amazing that Calix and Marconi are mentioned but nothing on Zhone?? With their AccessNode, ISC-303 and MALC products, they must be #2 or 3 in installed base ... what gives?

LW
coolhand 12/5/2012 | 12:30:37 AM
re: Catena Cozies Up to RBOCs LW,

Good point - Wonder if the ISC303 takes the Catena card? - Also given the ISC303 does a great retro of the SLC series 5 with 2x line density - interesting possible opp between Zhone and Catena

CH
light lunch 12/5/2012 | 12:30:35 AM
re: Catena Cozies Up to RBOCs I can see why Calix was included. Based on their press release, they've shipped 500 complete systems for revenue. In this industry, thats a huge ramp (assuming its true). If you ask me, thats more impressive than 1000 CNX-5 cards at about $1000 each or Zhone's pre-purchased footprint.

LL
rbkoontz 12/5/2012 | 12:30:20 AM
re: Catena Cozies Up to RBOCs I have to take my hat off to Catena for the little SLC5 gig. They found a backdoor over the POTS test bus to get ATM across it. Unfortunately, this is a very small niche business on the SLC5 - perhaps $5 - $10M per year opportunity for a couple years then it will die when the carriers demand higher bandwidth, full QOS solutions.

With the new FCC ruling, the ILECs will be exlusively deploying packet based DLCs. Catena recognizes this (given their BLC development) but they have very little chance to be successful in a shrinking market already dominated by strong, full featured products.

Fast forward 12- 18 months: My prediction is the BLC never gains traction, Catena runs short on cash, and sells its niche plug biz to Adtran for $30M.
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