Copper Access Startups Tarnished

The Ethernet-over-copper market appears to have suffered some serious setbacks, including the closing of startup Valo Inc. and a large layoff at Hatteras Networks.

The developments are disconcerting to fans of various Ethernet-over-copper access technologies, which promise to extend the reach and expand the bandwidth of existing DSL technology to promote broadband access. In the case of Valo, at least, it appears that investors got cold feet.

Hatteras, an Ethernet access startup, was developing technology that could route Ethernet over a rage of access media, including copper and fiber. CEO Kevin Sheehan won't say how many folk were let go, nor would he disclose the current census. Sheehan says the company is still "healthy," well funded (amount undisclosed), and working through trials with major North American incumbents. But several sources described the layoff as a substantial cut.

Valo closed down this week and sent its 50 employees packing. CEO David Stehlin says he can't comment on what Petaluma, Calif.-based Valo is doing to sell its technology or find additional financing. "All I can say is that this team and this technology are definitely worth saving," he says.

Stehlin says Valo's current investors were supportive and the company was in the process of closing a funding round. However, some new investors that were to be a part of the round "squashed the deal" just moments before pen was put to paper, he says.

Valo wasn't yet in product trials, but the company had attracted notice because of its founder, George Hawley. Hawley, the chairman of Gluon Networks Inc., was also the founder of Diamond Lane Communications, which was acquired by Nokia Corp. (NYSE: NOK) in 1999. Prior to Diamond Lane, Hawley seemed to be involved in all sorts of broaband technology except perhaps inventing the Internet.

Stehlin says Valo's product was an access system that was about one-foot high and could serve about 400 copper pairs from a carrier's central office. The system was designed to use a carrier's existing copper lines in order to provide business customers an alternative to buying T1 lines (24 voice channels at 1.5 Mbit/s) or breaking the bank on T3 service (45 Mbit/s, or 28 T1s) for their local area networks.

"There's not a great platform deployed today," he says. "The platforms that are in the network today will run out of gas pretty soon. If you have a great platform and you have a great bonding protocol, you can get north of 9 Mbit/s downstream to every residence that has copper. You can do a lot of damage and bring in a lot of new revenue."

Hawley and company garnered some attention because of their work with standards groups to create a bonding protocol -- known as Inverse Multiplexing over DSL (IMD) -- that is more advanced than today's inverse multiplexing standards, such as inverse multiplexing over ATM (IMA), the physical layer technology that calls for ATM cells to be broken up before (and reconstructed after) traveling across T1 links.

"IMD builds upon the existing strengths of ATM standards, while providing efficient carriage of Ethernet, ATM, Frame Relay, and TDM traffic," states a technical document from the T1E1 subcommittee of the Alliance for Telecommunications Industry Solutions (ATIS). "It is inherently protocol independent, flexible and extendable."

In short, Valo and its competitors are trying to find ways of cramming more data down existing copper pairs and, when appropriate, bonding several pairs together to form bigger bandwidth pipes.

So what's going on here? Have the venture capitalists decided that copper is passé? Though the RBOCs have given quite a bit of attention to competitive access technologies, such as fiber-to-the-premises (FTTP), these vendors insist that there is a lot of interest in using what's already in the ground.

"FTTP is a very slow build," says Stehlin. "It takes a very long time and its very expensive. If you can reuse the copper you have, [carriers can] serve 80 percent of the homes in their reach right away."

Interestingly, Valo's competitors mourned the startup's plight, but they also had their guesses as to why it had such a hard time finding funding. "Bonding several copper pairs is not easy," says Bill Szeto, CEO of Ceterus Networks. "Some approaches, such as using DSL, have distance sensitivity," he says. This issue, and the fact that copper pairs don't have uniform transmission characteristics, can force product costs up, making sales tougher to close, he says.

The competitive set are also quick to point out that Hatteras and Valo may have been unique in their setbacks. "Actelis's progress continues, with September already a record sales month," writes Thomas Reynolds, senior VP of worldwide sales and service at Actelis Networks Inc., in an email to Light Reading. He claims a "growing sales funnel, repeat customers, and trials in PTT labs across the world."

Ceterus, too, says things are dandy. It has Global Crossing Holdings Ltd. and Progress Telecom as customers, but it admittedly survives "on a shoestring," Szeto says.

"Healthy competition is a good thing," Stehlin says with a sigh. "What's bad is the funding market."

— Mary Jander and Phil Harvey, Senior Editors, Light Reading

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lastmile 12/4/2012 | 11:24:30 PM
re: Copper Access Startups Tarnished "In short, Valo and its competitors are trying to find ways of cramming more data down existing copper pairs and, when appropriate, bonding several pairs together to form bigger bandwidth pipes."

The cost of bonding several pairs of Copper together to form bigger bandwidth pipes is excessive. Fiber as a replacement is more cost effective.
ThurstonHowell3rd 12/4/2012 | 11:24:29 PM
re: Copper Access Startups Tarnished How do you figure that? Unless you use the screwed up cost analysis used by RBOCs your out of your mind.

Pulling new fiber to a location, including permits, time, etc. is WAY WAY WAY more expensive then lighting up copper pairs that are more than plentiful.
firstmile 12/4/2012 | 11:24:26 PM
re: Copper Access Startups Tarnished Mr. Howell,
I'm with you. The old saying is that "most buildings are within X fraction of a mile of a fiber run". Unfortunately, that last X fraction of a mile costs a bunch of bucks to cross and has a long time-to-service associated with it.

PS say hi to Lovey
grimreaper 12/4/2012 | 11:24:25 PM
re: Copper Access Startups Tarnished Jour-nal-ism; writing designed for or characteristic of newspapers (Merriam Webster)

Boy oh boy...you folks are starting to make me look like mister happy pants.

First off, I'll give you the story on Valo closing. This was a great bunch of technical folks that can and have built some great products. Them closing is news. Can't comment on the CEO, Marketing, or Sales folks though.

Beyond Valo closing, what are the facts behind this story?

It says in the story that Valo's product was not in trials and therefore not in revenue...well here is a newsflash...today it is impossible to raise money on hype and promise when you are a later-stage company. But does that mean that the space is dead?

Carrier colleagues tell me that they have seen several products in this space and that several have compelling value propositions and useful mainstream applications (Spediant, Actellis, Hatteras...Please note that these carriers say that Valo always held promise but never had anything other than slides).

Next interesting fact...Actellis has a recod sales month? A "record" leaves it pretty wide open don't you think?

Because Hatteras may have had a layoff is the space dead? LR is starting to sound like the national inquirer. Didn't these guys raise $40M
last year? I don't think that they are running out of money, and the carriers I know say that they have some good dosh.

Next...Ceterus -- I thought that their product set included bonding across copper pairs? Yet you are reporting that they believe that Valo may have failed because this was difficult (but not too difficult for them?)

Final fact...how about an interesting slant to a story like this...instead of just touching on rumor tidbits throughout?

Cheer up...
kaebrown_98 12/4/2012 | 11:24:23 PM
re: Copper Access Startups Tarnished The quote from the CEO of Ceterus indicates that Ceterus is not too far behind Valo in terms of shutting the doors.
you will never know 12/4/2012 | 11:24:22 PM
re: Copper Access Startups Tarnished Thurston lovey where have you been? miss reading your very brilliant insights .... xoxo
ThurstonHowell3rd 12/4/2012 | 11:24:21 PM
re: Copper Access Startups Tarnished Really now... Last I hear the product is shipping, several carriers are very interested in the technology and they are hiring.

Is it possible in LR's zest to spread bad news they got their channels crossed?

ThurstonHowell3rd 12/4/2012 | 11:24:21 PM
re: Copper Access Startups Tarnished Hey LR...

Grim is right... What about it? The story about Valo and the trimming over at Hatteras were at least founded in some sort of fact.

The rest of the article is nothing more than innuendo, at best, and complete drivle at worse. This is a terrible industry... The ONLY space with any life at all is in the access space. It would be refreshing to see LR take the high road and write something positive instead of sleezing from one rumor to another.

You guys used to be newsworthy... Now I long for the day when I see the LR domain name becomes available.

P.S. Hey Grim... Couldn't help but notice the dosh comment... Ever work in Boston?
kaebrown_98 12/4/2012 | 11:24:20 PM
re: Copper Access Startups Tarnished Admittedly my first posting was a reaction to what was printed. I should have done some investigation first.

Then again, my recent investigation indicates that my reaction was correct. Press releases on the company website indicate that carrier mentioned in the article is only evaluating the product. Thus, by "shipping," you must mean "shipping for trials." Unless they are different than any other equipment vendor, trial hardware is at list minus 100%.

Thus with immaterial revenue, funding is everything. Ceterus' last round of funding was a year ago for $11.5M, total to date of $13M. Assuming 50 employees and a normal burn rate, the $11.5M provides 15 months of operations. Depending on how much of the $1.5M was left when they completed the $11.5M round, they have 3-4 months left.

Clearly I have made some assumptions, but to me they seem reasonable. If so, then my first impression is accurate.

Am I missing something?
Y2KickIT 12/4/2012 | 11:24:20 PM
re: Copper Access Startups Tarnished Copper is expensive to make work and keep working. The fact is that high take rates of DSL in a neighborhood require overbuilding the existing copper with, more copper.

Often during provisioning, the ILEC doesn't know what is good in the outside plant until the truck roles. Grooming the lines to remove load coils and bridge taps.

Each binder group can only take so many high capacity circuits, when you run out you need more cable. It is labor intensive, expensive in capital expense, and more expensive than fiber in operational expense. It also will never have the capacity of fiber.

It is time to put copper to rest. Put telecom back to work with a fiber build out.
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