Internet Photonics Pipes in $31M
Internet Photonics Inc. today announced it has raised $31 million in venture funding, bringing its total funding to over $63 million (see Internet Photonics Lands $31M). The company is marketing an Ethernet access product to both ILECs (incumbent local exchange carriers) and MSOs (multi-service operators).
ComVentures and TeleSoft Partners joined Internet Photonics’ round as new investors, while Sprout Group and New Venture Partners LLC also came on board. This is the second deal in the past two weeks in which Sprout and ComVentures have funded the same company. Sprout led the second round for Aurora Networks Inc. as a new investor last week (see Aurora Accesses $30M). ComVentures also invested in Aurora and was an early stage investor in the company.
Internet Photonics is interesting because it has a product that solves a service deployment problem, says Cliff Higgerson, a general partner at ComVentures. The company is selling gear that fits into existing Sonet architectures and allows carriers to offer Ethernet services without replacing any of their existing Sonet add/drop multiplexers (see Internet Photonics Etherizes). Using coarse wavelength-division multiplexing (CWDM), the product shares the same fiber as existing Sonet services to deliver Ethernet transport.
“Customers who have a huge investment in their Sonet add/drop multiplexer network are the ones who would be interested in these solutions,” says Dave Passmore of the Burton Group. “Their products work transparently and minimize the pain and suffering of ripping out old Sonet infrastructure to deploy Ethernet.”
Another positive for Internet Photonics is the fact that the company has products that serve both the ILEC market and the cable MSO market. While the ILEC market is expected to be the larger of the two in the long run, the sales cycle in that market is very long. By contrast, sales cycles in the cable MSO market are much shorter. And, so far, the cable industry hasn’t suffered the same economic strife that the telecom industry has.
As a result, Internet Photonics is first targeting the cable market for more short-term revenue growth. The company has two separate product lines to address these distinct markets: the LightStack MX and the LightStack MXA (see Internet Photonics Intros Cable Ethernet). And with the money raised through this round of funding, the company is establishing a separate sales team to focus on cable MSOs. It is also moving forward in the ILEC market. It has already begun the long and expensive Osmine process to get its products certified so that regional Bell operating companies (RBOCs) will buy it.
It is already generating revenue from an unnamed cable MSO and has either completed certification or is currently in certification testing at a number of ILECS, interexchange carriers (IXCs), and other cable MSOs, according to Gregory Koss, president and CEO of Internet Photonics. The company, which had its last funding round in December 2001, expects to be cash-flow positive in 2003 (see Optical Ethernet Startup Launches).
“Both markets provide big opportunities for us,” says Koss. “ILECs and IXCs will be important in the long run, but cable operators are buying gear now and that’s an opportunity we can’t afford to miss. But they are both very different markets. That’s why we have separated the sales team.”
The company is also targeting another hot market: Ethernet access. According to a report published by Morgan Stanley Dean Witter & Co., Gigabit Ethernet is already making headway into the metro market as an access technology. All four of the RBOCs are currently evaluating metro Ethernet initiatives. They are expected to make significant investment in this area over the next five years. By 2004 all service providers will likely support Ethernet in the metro, according to Morgan Stanley. And by 2005 nearly 40 percent of high-speed WAN data services will likely run over Gigabit Ethernet services, says the report.
For more on the metro Ethernet market, see the Light Reading report: Metro Ethernet.
— Marguerite Reardon, Senior Editor, Light Reading
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