Atrica Closes in on Indian Deal
The Israeli press initially reported on this deal back in December. While its value appears to be substantially lower than originally reported, with possible revenues in the tens of millions of dollars instead of hundreds of millions, the pending agreement has the potential to bring more business to Atrica in India's -- and Asia's -- evolving market for Ethernet transport.
Until recently, the telecom infrastructure in India remained relatively undeveloped. The regulatory situation in the country has slowed progress over the past two decades. But things are changing, and service providers are starting to build out their infrastructures. Reliance Telecom recently announced it would invest $5 billion in the next few years to become India's leading telecom company. The carrier plans to lay fiber optic cables and provide cellular and Internet services.
“There are a heck of a lot of people in India that will be making phone calls and accessing the Internet,” says Stephen Kamman, an equities analyst with CIBC World Markets. “So there is a good reason to look at this market as a long-term growth opportunity.”
Atrica officials would not comment on the potential contract.
“We can’t comment on any unannounced customers,” says Nan Chen, director of product marketing for Atrica. “But I can tell you that we have been getting significant traction with customers around the world.”
Atrica has announced three customers: Hokkaido Telecommunications Co. Ltd. (HOTnet) in Japan, Al-Pi Telecomunicacions in Spain, and France Telecom SA (NYSE: FTE) (see Euro CLEC Says 'Oui' to Atrica and Atrica Plugs Into France Telecom). Chen says the company is engaged in trials and anticipates final sales with about a dozen service providers worldwide.
Atrica, which has raised over $117 million in funding, makes metro Ethernet transport switches. According to an Infonetics Research Inc. report published in January, metro Ethernet was a $2.5 billion market in 2002. That figure is expected to grow 131 percent to $5.7 billion by 2006. Much of this growth is happening outside North America. The Asian market is particularly hot, as many Ethernet carriers are greenfield suppliers building out new infrastructure.
“There has barely been any activity in the United States so far for metro Ethernet,” says Frank Dzubeck, president of Communications Network Architects (no Website). “So it’s not surprising that Atrica and others are focusing outside North America.”
Some Asian countries like South Korea, Japan, and China have seen a significant telecom buildout, and companies like Cisco Systems Inc. (Nasdaq: CSCO) and Riverstone Networks Inc. (Nasdaq: RSTN) have already reaped some of the benefits.
Now India looks to be opening up, even though progress could be uneven at first. Indeed, Kamman of CIBC warns that India, like other developing countries, typically goes about network builds in short, concentrated spurts of activity. This means that companies may get large initial orders, but may have to wait a long time before realizing any repeat business. He also warns that all of the regulatory issues have not been resolved and could continue to slow some deployments.
“Yes, the potential is there,” he says. “But it’s been there for 20 years, if you see what I mean.”
Still, emerging countries like India offer startups like Atrica a unique opportunity, because they are often starting their network builds from clean slates. This means that these providers don’t have legacy issues to deal with and are free to choose newer, more cutting-edge technology. It also means that startups aren’t selling against a large installed base of vendors that have already established relationships with the carriers.
Of course, this doesn’t mean that established equipment providers aren’t stiff competitors in this market. They are. In fact, Nortel Networks Corp. (NYSE/Toronto: NT) is also supplying Reliance with Ethernet and multiservice gear. Last month, the company announced it was supplying Reliance with its Alteon Web switch and a variety of Passport switches (see Nortel Supplies Reliance in India and Nortel Closes Content Switch Deals).
— Marguerite Reardon, Senior Editor, Light Reading