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Atrica Closes in on Indian Deal

Metro Ethernet startup Atrica Inc. is making progress on a deal with Indian service provider Reliance Infocomm Ltd., says an industry source.

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
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brahmos 12/5/2012 | 12:43:03 AM
re: Atrica Closes in on Indian Deal http://www.eet.com/pressreleas...

At the end of 1995, India had cumulatively installed 283,600 fiber-km. By the end of 2000,
cumulative installations were 2.5 million fiber-km. By the end of 2002, cumulative installations
had more than doubled to 6.7 million fiber-km. In 2002, India ranked fourth in global demand,
just behind Japan, the United States, and China.

---
tmc1 12/5/2012 | 12:42:58 AM
re: Atrica Closes in on Indian Deal juniper already is supplying the core.
metroshark 12/5/2012 | 12:42:58 AM
re: Atrica Closes in on Indian Deal From what I heard, the Reliance deal is not at all a good deal for equipment vendors. Rumor is that Cisco and Juniper passed on this deal since they did not like the financing options required by the customer. They basically expect that the vendor will the give the equipment for free for now, and Reliance will pay them in small installments as they start collecting revenues some time in the future. Also, to win business in the Indian market, vendors are typically forced to give 65-70% discount off the list. This may work for companies like Juniper who have 80-90% gross margin on some products who may be willing to give out such discounts to win initial business or to get some incremental revenue, but I am not sure if Atrica can afford to do this.
BobbyMax 12/5/2012 | 12:42:56 AM
re: Atrica Closes in on Indian Deal To the best of my knowledge no other service provider has deployed in their networks. It is considerable risk to India as no US vendor has deployed Atrica equipment. Products attributes and prerformance is not known. It is very strange that Atrica is not interested in developing in the US.
rjmcmahon 12/5/2012 | 12:42:54 AM
re: Atrica Closes in on Indian Deal The goal of an equipment vendor is to enable productivity. And it seems that India is building a world class IT powerhouse. (Dubya should take a lesson from that rather than the Enron energy shenanigans, much of which was played out in India.)

So good deal, or not, probably depends on the long term strategic planning more than any short term discounts.
photonicGuru 12/5/2012 | 12:42:49 AM
re: Atrica Closes in on Indian Deal I would really like to debate about the good deal or not a good deal. Financials are the only one part of the deal and financing pattern for asia is not new for any vendor either it is Juniper, Cisco or Atrica.....Business in asia is build on building relationship and i am sure atrica being on board with reliance help them in building long term strategies....as well help them having integrating their box with other systems....old guy from Redback is good enough shark to identify the value proposition for Atrica..if there won't be any good value behind this deal then he won't lurk in bombay heat for a month....happy posting
data_guy 12/5/2012 | 12:42:46 AM
re: Atrica Closes in on Indian Deal "old guy from Redback is good enough shark to identify the value proposition for Atrica."
IN MY OPINION Good Old Vivek Ragavan looks out for vick (himself), no one else. Shark is quite a good apellation for him.
Have experience with him from his pre-dedback days.
lightall 12/5/2012 | 12:42:42 AM
re: Atrica Closes in on Indian Deal We didn't hear employees at Siara complainted about Mr. Ragavan's business acumen when sold to Redback for $4.3B. Bubble or no bubble, good deal or bad for Redback, it was hard dollars made for those employees at Siara.

Let's wish Atrica well, in fact, let's wish all survived startups well. Otherwise, only big names left, which would eradicate competition and innovation, much like today's telecom provider space in the US.

Like it or not, the major growth of the telecom will be outside of the US for the next few years. Startups should think out of the box to pursue aggressively, instead of following the traditional business model, U.S. first and ROW second. The time has changed indeed...
brahmos 12/5/2012 | 12:42:41 AM
re: Atrica Closes in on Indian Deal good example of a small ROW focussed company is UTStarcom. they sell in china, india, south america, east europe and s.america to my knowledge and had revenue of ~ $1 billion in 2002 - not small change.

plus their stock has held up well after IPO and
makes $$ for their workers month after month. in
pre-IPO days they skimped on salary but awarded very generous numbers of stock.
rjmcmahon 12/5/2012 | 12:42:39 AM
re: Atrica Closes in on Indian Deal We didn't hear employees at Siara complainted about Mr. Ragavan's business acumen when sold to Redback for $4.3B. Bubble or no bubble, good deal or bad for Redback, it was hard dollars made for those employees at Siara.

Why would employees complain about receiving payments for future generations' GDP without doing the actual work? And bubble or no bubble, how does that deal show business acumen over things like insider cronyism?

Only a fool would suggest that the lack of complaints from beneficiaries of a bubble has any significant meaning and warrants our respect. It does not and deserves it not.
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