The Light Reading Interview

In the Spotlight: Bert Whyte, Director, President, and CEO, net.com

It is 1969, and on almost the exact day that the hippy era is coming to a bloody end at a Stones gig in Altamont, a new era is starting 6,000 miles away.

Across the ocean, on a small island once called "Great Britain," Hubert A.J. Whyte is pulling on his C&A shoes, packing a pork pie for his lunch, and beginning his career in telecommunications at British Telecom (BT) (NYSE: BTY).

The rest, as they say, is history.

Hubert “Bert” Whyte is a hardy perennial of the networking industry. His thirty-three years in telecom have spanned numerous countries and, tragically, Wales (which is where I first met him, in 1989).

Ah, yes. I remember it as if it were 13 years ago.

Back then, Bert was working for Newbridge Networks Corp. (NYSE: NN; Toronto: NNC), where he had already been named “Blurt” by journalists for his habit of letting the cat out of the bag [meow] at the drop of a hat [thunk].

Newbridge didn’t care. They promoted him to vice president and general manager and moved him moose-side, to Canada. (Note: Newbridge later also sold itself to the French – completing a cycle of irresponsible behavior).

Whyte left Newbridge in 1994 to become President and CEO of ACC (later bought by Swedes... a pattern, perhaps?).

From there he moved to his current place of employment: Network Equipment Technologies Inc. (net.com) (NYSE: NWK), where he has served as a director, president, and CEO since 1999.

Mr.Whyte recently graced Light Reading’s offices when he popped by for a cup of tea and “a bit of a chat.” We thought he was coming to enlighten us on the mysteries of service creation. But we got more. Much more. Songs were sung. Chairs toppled. PR people made valiant (but vain) attempts to shut him up by clamping a hand over his mouth.

Eccentric. Ebullient. A networking savant. A soccer fan. And (can we be honest here?) a bit of a looney.

We present then, for your edification: Bert Whyte.

Read ahead for the man's views on:

— Stephen Saunders, Founding Editor, Light Reading
http://www.lightreading.comLR (Saunders): Bert, how can I put this? You haven’t had much luck recently, have you? First of all, you changed the name of your company to net.com at about the same time that "dot-com" became a swear word. Then you rebranded an ATM product so that it didn't look like ATM, when ATM has since boomeranged and suddenly become hip again. Then you went after the CLEC market, which collapsed. And now your office is sinking into the ground [Ed. note: True. One of net.com's offices recently started to sink into the San Francisco Bay].

Whyte:You make your own luck.

LR: Well, we’re thinking of nicknaming you "lucky."

Whyte: Yeah, so let me answer all those because they are good points to be made. I suppose being an energy company right now, people would spit on the ground. Or to be a large carrier, they’d spit on the ground. We all have our day. I think the Internet is still a very important change in the society, and I think a strategy of associating us with the Internet is very important, because we think the network will ultimately be an IP-based network. And we don’t like the casual people with little thoughts who sort of look at a person and say, "His name is Enron, I better not see him anymore."

You know net.com has a meaning. Everything we do has a meaning. Even the awful yellow that we have for branding our products.

LR: You hate your yellow?

Whyte: No, I didn’t say I hated it; it’s an awful yellow. It’s not a bright yellow.

LR:Why would you pick a color that you hate?

Whyte: That has a meaning. And I didn’t say that I hated it. I did not say that. I said it was an awful yellow. Alright? Not a bright yellow but an awful yellow. So can I, may I continue? You don’t mind?

LR: Sure.

Whyte: So this curve means from the narrowband to broadband to the Internet. That is the meaning of the swirl… The yellow that we use represents reliability, robustness, and good engineering. It is the same yellow that Sony used on its industrial products; the same Philips used and the same as Lufthansa. Yellow in this color represents power. Yellow represents reliability and strength. Now what was the other issue you complained about?

LR: The office sinking.

Whyte: Now that was unfortunate, and it’s still sinking. But we were very lucky to get an agreement with our insurance company for nearly $24 million to help us move to a new facility, which Steve visited two weeks ago. The other facility was not a nice place to work. It had no atmosphere. Even though it was nice and modern, I was glad that it was sinking. What was your other complaint?

LR: ATM.

Whyte: Actually, our product does ATM, but it also does IP. It is a hybrid platform. People forget we were one of the founders of the ATM forum. We hold significant patents in ATM, which everyone is obliged to use to build basic ATM capabilities.

LR: So you make money on it?

Whyte: No, we don’t. We use it to protect us against large players who want to make money on it.

LR (Saunders): Give us some help here understanding the history of net.com.

Whyte: In 1983 a group of guys [Bruce D. Smith, Walter J. Gill, Roger Chrisman, Robbie Forkish, Audrey McLean, and Sarah Schlinger] said we could do exactly what Timeplex is doing, but do it bigger and better. And they went public in 1987. They were the darlings of Wall Street and became the de facto standard for corporate America wide-area networking.

LR: And you were working for Newbridge Networks then?

Whyte: Indeed I was. Though I was looking over the fence at Network Equipment Technologies [now net.com]. They started to build an international business mainly from Frame Relay and ISDN access. They realized that the world was going from narrowband to a packet world. They were stimulated by a little company in San Jose called Stratacom that was making a lot of noise about it. So they built a subsidiary called Adaptive Technologies, which helped define ATM LAN technology.

It was around ’94 that the ATM wide-area business got started. But Newbridge and Cascade crushed Network Equipment. So when I joined in ’99, they still hadn’t shipped the ATM switch and it was five-year-old technology. They had lost the market. So we took the core technology and shoved it on ASICs and made that part of the new platform.

LR: So where are you now with the Scream product?

Whyte: We are in trials now.

LR: When you say you are in trials – trials with whom? Incumbents?

Whyte: It’s a mixture, to be fair. We go where the business is. But our target is incumbents, and we have a number of trials in small and large carriers. A number of independents are in play and we also still have some CLECs in play, the ones that are surviving.

LR: When do you think one of these is going to pay off, then?

Whyte: Getting back to that luck thing again. We are in a difficult environment. It’s like getting ready to go to the dance and you turn up to the dance and there is nobody there.

LR: Are you still selling the TDM product?

Whyte: It’s around a $15 million to $20 million a quarter product. There were 1,500 people at the company, now there are 500 people. We really have torn into expenses. Our heart goes out to all those vendors who have seen this decline over last year. We’ve been through that and had to let people go. But we’ve stabilized our product and the company, and we got a little bit of luck, probably our first bit of luck, given all our bad luck. The federal government decided to increase their investment in networks for security reasons. For instance, we know that they are trying to build a parallel FAA network.

LR: Big business with the U.S. Government, eh?

Whyte: Yes, but this all has to be off the record.

[Tape turned off for ultra-super-top-secret discussion revealing absolutely nothing]

Whyte: We have another product too. It’s really loud. We call it Shout. It’s a voice over IP and media gateway. What’s interesting is it does H.323 to SIP conversion. We’ve gotten a little revenue on both Scream and Shout. Scream and Shout and work it all out! That’s the title of a song in the U.K. We actually asked Lulu to join our board. She is the little Scottish girl who sang the song. Scream and shout and work it all out! [PR handlers wince.]

LR: That’s really terrible.

Whyte: Now we’ve come out of this horrible decline – ka, ka, ka, ka [sound effects] – difficult to control. And let me tell you: When your business starts to decline, it’s horrible. You can’t see the end.

The problem is that when we came out with a new product the industry flopped. It is really very bad out there, so we just have to work hard and focus on the products. The luck will follow.

The hardest thing in the world is to turn a company around. I say that because that's what we are doing! Ha ha! Just think if we turn this one around. We’ll be born again – we are born again Christians! By the way, that’s part of what we do here – ha ha ha! Everything I say you can quote – other than what I say that's off the record, of course. [Editors blink. Slowly.]

LR (Raynovich): How much cash does net.com have?

Whyte: $100 million in cash. We had $140 million cash in 1999, so we’ve managed to keep most of the money in the bank. And we bought two companies.

LR (Raynovich): It’s quite peculiar being in your position. You’re a public company. What do you say on conference calls? 'Yeah, we’re working on a new product. It will be out any day now. Just hang out.' It must be hard managing expectations.

Whyte: Well, actually, we have done that pretty well, because we have been conservative. We don't like to be bullish. In the last three quarters, we met or exceeded expectations. We are trading below book. There are only 20 million outstanding shares. We’re relatively conservative. We’re 80 percent held by institutional investors.

LR (Raynovich): Has anyone approached you about taking you private?

Whyte: People talk about that, but not specifically. I think the bankers are looking for business, basically.

LR (Reardon): So, what's service creation all about?

Whyte: In this decade we are going to define service creation – and it’s not what people think it is. What is the key is having the ability to automatically drive services. What do we define as services? Well, services go from the whole of the OSI layer, from Layer 1, which is bandwidth and the manipulation of bandwidth, right up to application layer.

We get lumped with IP services. It’s not just about IP services. Service creation is the ability to drive services automatically by the user, by a piece of application, or by another network...

[Editors begin dozing off.]Whyte: ...it doesn’t become static. Potentially, the service provider has more ability to provide a different level of service. To really achieve true service creation we are asking for fundamental change in the policies that currently exist within the service provider environment… You know the current mode for making revenue is based on capacity, distance and time [editors fall asleep]... What we are saying is with real dynamic networking through service creation, a service provider can get value Now. That’s what we call service creation.

LR (Raynovich, waking up, startled): Okay. But is it really as easy as that? You just say, “Hey we are going to create new services for you.” I mean, the whole problem for carriers is builiding out access networks and having the capital to do that. DSL aggregation is the only broadband service that they are doing right now.

Whyte: We’re telling you that the business that we are selling today is focused on aggregation subscriber management, because the carriers believe, at least outside the U.S., that there is a new revenue opportunity for that business. If they were just selling voice they would have flat, if not declining, revenue. So they thrive on new revenue.

LR (Raynovich): Over DSL?

Whyte: Obviously, we are saying service creation existed before us. What we are offering is a way to automate it.

LR (Raynovich): Why hasn’t the market happened?

Whyte: Everyone’s bruised. They are in pain and suffering.

LR (Reardon): Who are your competitors?Whyte: The people we see in aggregation subscriber management are Unisphere Networks Inc., Redback Networks Inc. [Nasdaq: RBAK], and, to a degree, Nortel Networks Corp.'s [NYSE/Toronto: NT] Shasta. They have good subscriber management plays, and some of them have good VPN stories. But we are not seeing much demand for it. None of them, whatever they say, have what we call service creation.

LR (Reardon): And CoSine Communications Inc. [Nasdaq: COSN]?

Whyte: No, actually we don’t see CoSine as a competitor now. Well, it’s got itself in a specialized niche, which is essentially high-performance computing in the network.

LR (Raynovich): That’s funny, because you call us up and shout at us whenever we fail to mention you in a story about CoSine.

Whyte: I think they are an IP service platform and not a service creation platform.

LR (Reardon): So with the Scream product, I guess you are trying to get people to tear out old infrastructure?

Whyte: No. Carriers, bless their cotton-socks, never throw anything away. There are carriers that are expanding their services, so we are trying to plug into them or new carriers that are building new services. So, we are trying to get in there first.

LR (Raynovich): New services like what? DSL services?

Whyte: Essentially DSL and high-speed aggregation, what we are saying is we can offer lower cost per subscriber – $2 to $5 versus $10 to $15.

LR (Saunders): How many subscribers?

Whyte: We can scale up to, you know, potentially, a quarter of a million. But we aren’t there yet. I’d say 10 to 15,000 subscribers.

LR (Raynovich): If you’re going to leapfrog the market leader, aren’t you going to need something that scales an order of magnitude better?

Whyte: Redback’s new product is the 10,000, which hasn’t had a good history. It’s significantly more expensive than Scream and from a scaleability point of view they claim up to 30,000 users. They are trying to sell that product into their installed base, so they aren’t going to do much investment in the existing SMS 500 and 1800 product. This is where curiosity starts to develop. They announced a new product, the Smart Edge router, which I believe was an optical router at one point. Yes, interesting move. And they are now trying to use that product at the same edge, and I would imagine that if they’re successful with that, then I would imagine the 10,000 would have a short life, personally. But I wouldn’t like to speculate.

LR (Raynovich): You just did. What about Unisphere?

Whyte: I think they have done a very good job. They have had time to do it, of course. They have had about six years since the Redstone acquisition. Of course, they have got a very good channel in Siemens AG [NYSE: SI; Frankfurt: SIE].

LR (Reardon): They also have a voice gateway product.

Whyte: Yeah, Castle, but we don’t actually see that at all in the market. I think they had trouble with it. They bought three companies. A company called Argon, a company called Castle, and a company called Redstone. Redstone is Jim’s company – what’s his last name?

LR (editors, in sync): Dolce.

Whyte: Yeah, that’s his company. Castle we don’t see. Argon they’ve already written off.

LR (Saunders): Actually, I think they’ve incorporated it into their new product.

Whyte: Yes, they’ve written off the company for the registration purposes. But now they are going to have this new product, which is a really an interesting area because I don’t see 320 Gbit/s sitting on the edge of any network. There's also some conflict here. Alcatel is selling the Newbridge product into Siemens because of a previous relationship, and they don’t want to cause problems with their customers, one of which is Deutsche Telekom AG (NYSE: DT), who bought a lot of the Alcatel SA (NYSE: ALA; Paris: CGEP:PA) products through Siemens.

LR (Raynovich): You are going to have to go back a bit. What are you talking about?

Whyte: Newbridge had two relationships – Alcatel and Siemens.

LR: What kind of relationships?

Whyte: Reseller. I know because I was at Newbridge. Siemens was ultimately the better channel for Newbridge and sold more product. They were our best channel. Now, Alcatel bought Newbridge and suddenly Newbridge’s best channel is an Alcatel competitor. So they came to an agreement.

LR (Raynovich & Saunders): Oh, that’s good stuff! [Editor assigns story to reporter, who never writes it.]

Whyte: Siemens has been selling the Alcatel/Newbridge product into Deutsche Telekom. Now Unisphere just came out with a product, which by the way is spectacular, it goes from 20 Gbit/s to 320 Gbit/s. There are three products. Never before have I seen a company come out simultaneously with three products of that granularity. I have never in my history in communications. I have heard people say we can do two small/medium and one big one. Or a really big one and we’ll have a small one and a little one, but for someone to come out and say we’ve got three all at the same time, that is spectacular. That is really... They must have a big “S” on their chests.

LR (Raynovich): They seem pretty set on the IPO.

Whyte: If I were Unisphere, I would say, "What if we never go to an IPO? Where is my wealth opportunity?" Then I’d say, “If we don’t do an IPO by this date, you, Siemens, will buy the company for this amount." I thought that time was January. The market sucks now.

LR (Reardon): What about Celox Networks?

Whyte: They’re much bigger and faster than us.

LR (Saunders): Let me write this down: So you are smaller and slower?

Whyte: I don’t think that people are going to put a million subscribers on a single platform. It does not fit with the conservative natures of incumbent carriers. I doubt whether the Celox product is an incumbent carrier platform given its size.

LR (Reardon): They’ve told us that they are now focusing subscriber management too. Nobody is buying IP service platforms right now.

Whyte: Yes, the only thing that is selling today is aggregation and subscriber management. That is why Unisphere has to take their edge router and make it an aggregation play. That is probably why Unisphere is the most visible player out there today and they have done a very good job. But they have had a lot of time to do it, mind you.

LR (Saunders): But this doesn’t compete with Riverstone Networks Inc. [Nasdaq: RSTN], right?

Whyte: No, I don’t know where Riverstone is going. They seem to be all things to all men right now. They are a switch – very successful in Asia, apparently. But they don’t have a carrier-class product. They obviously claim they do, but essentially it’s a Layer 2/Layer 3 Ethernet switch.

LR (Raynovich): Do you think the government can do something to help the industry?

Whyte: The ‘96 Act was a half-pregnant act. Basically it satisfied neither the incumbents nor the new competitors. The only way I think to succeed is to forget about regulation. Separate, break-up the companies into fixed and wireless businesses, because the whole issue is related to the access. Most of the incumbents’ revenue source is voice today, and they do not want to disrupt that. So they are going to slow the support of DSL and competitive providers of DSL to make sure they don’t disrupt their voice network.

I say, force that disruption through the separation of fixed and wireless. That will force the incumbents to start thinking about newer, high-speed services as a way to gain revenue. There is no incentive for them to gain revenue at the moment.

LR (Raynovich): What does this mean for you guys? You are trying to sell into this market.

Whyte: Yes, the U.S. is a disaster. Our focus this year in the U.S. is to try and get in the labs with the hope that by next year the budgets will allow them to spend more money.

LR (Saunders): Isn’t the Korean market pretty well saturated?

Whyte: Korea started earlier than everybody else. But there is still some big business left in Korea. They just put in a thousand-node network. I didn’t know there were that many people there. Japan is still pretty early we think.

LR (Raynovich): How long before you start selling stuff?

Whyte: We have enough runway for five years. Basically, if you look at the model, we have two new products in two hot markets, aggregation and subscriber management leading to service creation, and this media gateway area. And we have this legacy business.

LR (Saunders): What do you think of the Enron and Asia Global Crossing Ltd. [NYSE: AX] mess?

Whyte: The rules are definitely going to change, and we are happy for that because the playing fields are going to come level again because there is so much bullshit. I’m telling you I know one large incumbent carrier offered to buy a certain amount of product if you bought a certain amount of bandwidth.

LR (Saunders): Amazing isn’t it? Great way to do business.

Whyte: I mean it’s criminal some of what has been going on. Look at that guy from Williams – is that still on? [pointing to tape recorder]

LR (Saunders): Yeah.

Whyte: Look at that company that is named after a tree. Some of that is near criminal. Someone invested in that company based on test results coming out of Williams Communications Group and they bought it at $50 or $60 and now it’s worth $3.

LR (Saunders): Some of those founders are billionaires now.

Whyte: It’s criminal. You look at some of these companies, these guys sold stock, some of them a month before they pre-warned. If you don’t know what your business is going to be in a month...