Équipe Partners With Ciena, Scores $40M

Équipe Communications Corp. has finalized a $40 million third round of funding, which includes a contribution from Ciena Corp. (Nasdaq: CIEN). The startup's also entered into a strategic partnership with Ciena.

Équipe, which plans to officially announce the funding tomorrow, hopes these developments will help it launch its multiservice switch. Dubbed the Équipe 3200, the product's designed to help carriers manage the transition from so-called legacy Asynchronous Transfer Mode (ATM) networks to ones based on Multiprotocol Label Switching (MPLS) and Internet Protocol (IP) (see The Great ATM Switch Blitz).

The product's still in beta test with unnamed carriers. Équipe says it's concluding RFPs with major carriers and plans to have first customer shipments in April 2002.

Équipe CEO Dennis Rainville is hopeful that the deal with Ciena will help Équipe's ramp-up. "This is a very important step for us," he says. "Ciena has a lead in the Layer 1 environment. We think we have the Layer 2 solution."

Details of the partnership deal are still being hammered out, Rainville says, but both sides hope the agreement will yield technical and customer benefits. There may be joint selling, for instance, in which a carrier would benefit from a close cooperation between the vendors on interoperability and other aspects of a multivendor optical solution.

Ciena's more reticent. "We're just saying we have a relationship to share technical and strategic information," says Ciena spokesman Denny Bilter.

Both vendors see the agreement as the first of a series. "Our goal is to grow the relationship with Équipe and continue to develop a successful business model that can be replicated with future strategic partners," notes Bob Finch, senior VP of corporate development at Ciena, in a prepared statement.

Rainville acknowledges that the contribution from Ciena is small and might qualify as a minority investment. But there's nothing small about the amount Équipe has scored. And the startup's gotten other new investors, including Sequoia Capital, which led the hefty round. Also joining are Battery Ventures, Matrix Partners, and North Bridge Venture Partners -- which participated in the vendor's first and second rounds -- and Pequot Capital Management Inc. and WorldView Technology Partners, which joined the second. Équipe has raised $103 million to date.

Was this a "down round," one that substantially dilutes the original contributors' equity stakes? "All rounds are down right now," quips Rainville. "In today's environment, a lot of companies just hope to do a round."

Rainville acknowledges that Équipe had to lay off about 25 people, roughly 19 percent of its workforce, just prior to signing the deal. The company now has 107 employees and will probably build up selectively, especially in sales, in the process of rolling out its product.

Équipe spokespeople have denied that early prototypes of the 3200 were held up by the discontinuance of chipsets the startup initially chose for its box from PMC-Sierra Inc. (Nasdaq: PMCS). While some of the chips were discontinued in a round of packet-chip cuts late in 2001 (see PMC-Sierra Pulls Packet Silicon), Équipe says it's made alternative selections. Among the chipsets it's using is PMC's Tiny Tera One (TT1), a switch chip that survived the cuts and which PMC-Sierra says it's continuing to support and develop.

Regardless of setbacks, analysts think the funding news is positive for Équipe and the industry at large, since it is a vote of confidence in a startup with an ATM-to-IP proposition for carriers. The deal with Ciena will afford Équipe many benefits, not the least of which is access to the distribution channels Ciena now has. It's also good news for Ciena, some say.

"This will enable Ciena to address legacy protocols and systems," says Deb Mielke, principal at Treillage Network Strategies Inc. Équipe, with its emphasis on helping carriers migrate from legacy to next-generation networking, will be a help to Ciena in pitching its wares, she says. The benefits to carriers would be particularly dramatic if the two companies were to integrate their management systems.

Indeed, Équipe and Ciena have both acknowledged the importance of the RBOCs in their future scenarios. The payoff could be enormous if these huge North American carriers can be wooed away from reliance on established players to take a chance on next-generation optical houses.

So far, Ciena has two RBOC customers, BellSouth Corp. (NYSE: BLS) and Verizon Communications Inc. (NYSE: VZ). And it's hoping for more. "PTTs and RBOCs are very important to us," says Bilter.

Équipe says one of the goals of its Ciena partnership is to win RBOC business. "That was definitely one of the things we wanted to accomplish," says a spokesman.

— Mary Jander, Senior Editor, Light Reading
http://www.lightreading.com