Optical/IP Networks

AT&T Shelves Grooming Test

AT&T Corp. (NYSE: T) may be putting another optical networking trial on hold, say industry sources (see AT&T DWDM Hope Dwindles).

Last week, Merrill Lynch & Co. Inc. said in a research note, Optical Systems – Terminal Velocity, that an AT&T request for proposal (RFP) focused on bandwidth grooming had been put on hold. This grooming initiative was focused on devices grooming traffic at the VT1.5 level. The carrier is already using the CoreDirector from Ciena Corp. (Nasdaq: CIEN) to groom traffic at STS1.

A spokesman for AT&T Research Labs denies that there has been any change in the RFP plans. But he would not elaborate on the vendor selection process.

Polaris Networks and Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA) have both been in contention for this contract. The purpose of the N3/1 or Next Generation 3-1 Digital Cross Connect RFP was to find a device to automate the provisioning of circuits at the VT1.5 (1.7 Mbit/s) level just as the CoreDirector had done for the STS1 (51.84 Mbit/s) circuit provisioning.

Exactly why the RFP would be shelved is not known. Some in the industry say that neither Polaris nor Tellabs were able to meet all of the requirements. Others say it has more to do with timing.

“There’s not as much pressure to test something like this in the current market environment,” says Rick Thompson, an analyst with PointEast Research LLC.

Thompson notes that the cost of adding a new vendor could be more than the savings AT&T might get by implementing the gear. Whatever the reason, AT&T is supposedly adding more devices from its current crossconnect supplier, Alcatel SA (NYSE: ALA; Paris: CGEP:PA).

The news of a possible delay in the project is an especially hard blow to startup Polaris. The 80-person company says it has had products in a number of carrier trials. But many in the industry have said that the AT&T contract was the most promising. Without naming names, Surya Panditi, the company’s new CEO, told Light Reading in January that he expected to recognize revenue from one customer by the end of the year (see Panditi Puts Spurs to Polaris). When reached by telephone today, Panditi would not comment on the specifics of the AT&T RFP.

“If they don’t get this contract they are in really big trouble,” opines Sam Greenholtz, an analyst with Communications Industry Researchers Inc. “They were really counting on AT&T and didn’t seem to have anything else lined up. It’s got to be a painful rejection for them.”

Polaris isn’t the first startup to suffer at the hands of AT&T’s long approval process. Celox Networks, which was developing an IP service switch, was another startup that had been counting on a contract with AT&T. The company had raised $155 million in funding, and had spent quite a lot of it trying to win an AT&T contract. But the contract win never came, and the company closed its doors in December last year (see Is Celox Farewell an Omen?).

Polaris has raised $77 million so far, a little over half of what Celox had raised. But PointEast's Thompson says he is more optimistic about Polaris’s chances for success. Unlike Celox, there are fewer competitors addressing the VT1.5 market. Aside from Polaris, few companies offer VT1.5 grooming. Tellabs offers a comparable product, which it acquired from Ocular in late 2001. Metro-Optix Inc. also offers a product.

Celox had been competing with edge routing vendors including Cisco Systems Inc. (Nasdaq: CSCO) and Juniper Networks Inc. (Nasdaq: JNPR), as well as a number of smaller companies like CoSine Communications Inc. (Nasdaq: COSN) and Network Equipment Technologies Inc. (net.com) (NYSE: NWK).

“It’s really a question of whether or not they have enough cash to hold on,” says Thompson. "At least on paper, the product looks compelling."

He warns that getting close to an AT&T contract can be both a blessing and a danger [ed. note: a blanger?]. In some circles AT&T is known as a startup killer, because of its rigorous testing program that can often take much longer to get through than some of the testing in the regional Bell operating companies (RBOCs).

“You really have to weigh how much money and time you are willing to spend to win the deal,” he says. “It’s not smart for any startup to put all of its eggs in the AT&T basket.”

But some startups and smaller companies have made it through the grueling process. Core IP routing vendor Avici Systems Inc. (Nasdaq: AVCI; Frankfurt: BVC7) is one of them. CEO Panditi actually had been CEO of Avici when the company first started doing business with AT&T; he is still Avici’s chairman. Like Celox and Polaris, Avici spent a lot of cash to win the deal. Some would argue that the carrier never ended up spending much on the Avici routers. But it was enough to help sustain the company in its early days.

“Even if AT&T doesn’t spend much with you, they are still a good customer to have on your corporate resumé,” says Simon Leopold, an analyst with Merrill Lynch. “It might help with the next sale. It’s a big endorsement, because everyone knows that they scrutinize the product and pick it apart.”

What’s next for Polaris? The company is likely looking for a partner (see Who Will Pick Up Polaris? ). Most carriers today are not willing to bet the farm on a startup and would like to see a Big Brother figure to help ensure that someone will be around to service the product. A number of companies that do not already support VT1.5 grooming could be likely candidates, including: Alcatel, Cisco, Ciena, Lucent Technologies Inc. (NYSE: LU), Marconi plc (Nasdaq/London: MONI), Nortel Networks Corp. (NYSE/Toronto: NT), and Siemens AG (NYSE: SI; Frankfurt: SIE).

— Marguerite Reardon, Senior Editor, Light Reading

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Cygnus X-1 12/5/2012 | 12:21:58 AM
re: AT&T Shelves Grooming Test Ray Kao and family business are glad AT&T end RFP due to no product. Where is Transwitch chip?

Ray Kao lie to engineers, lie to VC, where are trials?
ThouShaltNotJudge 12/5/2012 | 12:21:57 AM
re: AT&T Shelves Grooming Test This may be true, but youGÇÖve got to give them credit for building enough hype to get noticed.

The fact is that they are all liars, but this is just part of the game GÇô Polaris lies to VCs, Transwitch lies to Polaris, Polaris lies to AT&T, AT&T lies to Polaris, Polaris lies to themselves (and the VCs), Panditi lies to Polaris, Kao phone-home, Polaris (and perhaps even AT&T) lie to Panditi, Panditi lies to Avici, Avici doesnGÇÖt care, AT&T never cared, a chorus line of liars dupe LR into reporting this crap, and so the story goesGǪ
Light-bulb 12/5/2012 | 12:21:56 AM
re: AT&T Shelves Grooming Test My opinion is Polaris is not out. It simply depends on execution. Ocular networks didn't have an actual product either. In fact the product was mostly BS until a contract arose out of some damn good selling. You want to talk about lies? That is the life of a startup, its bleeding edge you have to oversell because your competitors will do the same. Your customer asks if this or that can be added well you know the answer... Absolutely! There is no NO in startup vocabulary. My concern is if Polaris nested... as in too many eggs in one basket. Companies such as Qwest and others are still looking for grooming devices and the right company to get them through. Polaris could be that company if they can outsell Tellabs, which to be honest is an EASY thing to do.
So my opinion... Alcatel ALSO has a 3/1 grooming device which they acquired from Astralpoint though its Garbage, Tellabs Bought Ocular for the OSX-6000, however the technology is based on some FPGAs which have yet to make it to ASIC it has horrible latency through the IBM switch fabric which won't be solved in its current revision and will only worsen if you take the chassis and scale to more than the 7 Protected OC-48s, They did sell one hell of a Multi-shelf story though wow beyond BS. So the competition is RIPE for another contender, Polaris could be that company IF and only IF they have the people who can pull the trigger on other companies to spread the gospel of the product. Now is the time to get into other key labs and get Names to help out to the VCs.
Ahh only time will tell.
Go Polaris! I certainly wish you the Best. Oh and Cisco you need to seriously looks at Polaris product the compliment to 454 and 600 could be a compelling reason and could help push the Cienna Coredirector out to pasture. A bundled STS/VT grooming platform with seemless management... Now that is the ticket!
ThouShaltNotJudge 12/5/2012 | 12:21:55 AM
re: AT&T Shelves Grooming Test "You want to talk about lies? That is the life of a startup, its bleeding edge you have to oversell because your competitors will do the same.".

You are absolutely right. And I have no vendetta against Polaris, or any of the others, specifically. From what I've heard, the K2, Ocular, Astral Point, et.al., products all have their own problems.

Yet I struggle to understand the "ripeness" for another contender in this space? I don't know how much revenue these vendors have pulled-in, but as AT&T has legitimized, there is simply no compelling reason to risk their business on new ASICs, new FPGAs, or anything else appearing on a PP slide or a Kiosk at a tradeshow.

And speaking of simple reality, can someone please explain to me how Ciena, Cisco, Tellabs, Siemens, etc. stand to realize ROI on marginal pull-through sales (or even stand-alone) from the acquisition of a Next-Gen VT switch? How many of these switches would one need to sell to to pay for a $.5-1B investment? Where is the market to support this?

Cygnus X-1 12/5/2012 | 12:21:51 AM
re: AT&T Shelves Grooming Test Polaris never in ATt labs because NO PRODUCT. No customer trial becuase NO PRODUCT. Transwitch SP chip didnot work and TP chip nowhere is sight!

Simple Reallity that Polaris has NO PRODUCT to trial or sell to customers.
roy g biv 12/5/2012 | 12:21:51 AM
re: AT&T Shelves Grooming Test The hot rumor here at OFC is that Kao and his product management director Lio are actively trying to raise money for the next venture. They must not think much of Polaris chances for execution.

Wonder what their day jobs think of this little moonlighting activity?

Light On...
jamesbond 12/5/2012 | 12:21:49 AM
re: AT&T Shelves Grooming Test Transwitch SP chip didnot work and TP chip nowhere is sight!


What is "SP chip" and "TP chip"????

wass 12/5/2012 | 12:21:34 AM
re: AT&T Shelves Grooming Test What's the difference between a VT1.5 grooming switch and what we used to call a VT cross-connect?? Marketing hype?
Light-bulb 12/5/2012 | 12:21:33 AM
re: AT&T Shelves Grooming Test I agree with you ASSumeNothing. There is enough spent dollars to realize some actual revenue. With Tellabs/Alcatel owning the 3/1 market Because of their Dinosaurs. As to entering later... I disagree NOW is the time to start pitching for next year. The RBOC sales cycle at best (With The best Sales People) is 6 months and more average around 9-16 months. Its costly and time consuming. Not to mention the OSMINE process, stabilty of product, Customer support etc. There is Room for NGDCS. Because there's not many available. The big guys don't want to listen to the carriers and they are too slow to move. If a company can Listen to the Carrier and build what they need instead of force feeding PP slides it can happen.
The winner will have to know a few things however, and the largest problem to solve for Carriers is very complex... Cutting over a DCS to a new NGDCS in-service. Thats a freebie the others will cost ya! :)

ASSumeNothing 12/5/2012 | 12:21:33 AM
re: AT&T Shelves Grooming Test
"And speaking of simple reality, can someone please explain to me how Ciena, Cisco, Tellabs, Siemens, etc. stand to realize ROI on marginal pull-through sales (or even stand-alone) from the acquisition of a Next-Gen VT switch? How many of these switches would one need to sell to to pay for a $.5-1B investment? Where is the market to support this?"

To answer this you need only look at the numbers for the $1.6B a year 3/1 market which is based on 10 year old equipment from Alcatel and Tellabs. They hold in excess of 90% of this market. I think there is some room for some next gen players who can reduce floor space, power and cost. But timing is everything and maybe a year from now would be better to enter.

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