CoSine Communications Inc. (Nasdaq: COSN) has beaten out top IP edge router vendors to win more business at KT Corp., formerly known as Korea Telecom.

Today, the company announced that KT, already a CoSine customer, has placed additional orders for its IPSX 9500, IP service switch. KT has been using the IPSX 9500 since April 2002 to offer IPSec-based VPNs (see CoSine Signs Korea Telecom). Now, the carrier says it will use these new boxes to offer Layer 3 Multiprotocol Label Switching (MPLS) Virtual Private Network (VPN) services. This application uses a standard developed in the Internet Engineering Task Force (IETF) known as RFC 2547.

The deal is important for CoSine because it's the first customer deploying the product in order to use the MPLS VPN features. Most of CoSine's customers so far have used the platform to offer encrypted VPN tunnels using IPSec.

Another interesting element of the deal is that KT did not go with a router vendor, such as Juniper Networks Inc. (Nasdaq: JNPR), which has been supplying KT with its edge aggregation ERX platform, to supply the VPN features.

“I think what probably tipped the scales in favor of CoSine in this deal is its ability to integrate network-based security and MPLS VPN support into a single platform,” says Mark Bieberich, an analyst with Yankee Group. “This allows CoSine to offer both Internet and intranet access from a single platform.”

Over the past 18 months, the line between IP service switches and edge routers has become increasingly blurry. As IP service switching companies like CoSine and Nortel Networks Corp. (NYSE/Toronto: NT) added MPLS VPN support to their products, routing vendors have added IPSec and some security features like firewalling to theirs. For example, Juniper offers an IPSec blade on its routers, while Cisco Systems Inc. (Nasdaq: CSCO) has incorporated some firewalling capabilities into its routers. As a result, CoSine has seen increased competition.

But even though the routing vendors have added some functionality into their devices, some analysts say that CoSine still has some unique capabilities that set it apart from the rest.

“CoSine offers more tightly integrated network-based security features, like firewall software from Check Point Software Technologies Ltd. [Nasdaq: CHKP] and denial-of-service protection,” says Kevin Mitchell, an analyst with Infonetics Research Inc. “Some vendors offer this solution, but it's in separate boxes. The IPSX 9500 is a good fit for carriers looking to connect their MPLS networks with their off-net IPSec networks.”

Indeed, this is what KT says it will be using the CoSine box to do. The carrier says that the IPSec function will allow it to connect remote users to corporate intranets. The MPLS VPN capability will allow these same customers to have direct Internet access. Because the IPSX 9500 consolidates functionality, KT will cut operating and capital costs by provisioning and managing customers using one platform.

Many companies are exiting this market like Celox and Lucent Technologies Inc. (NYSE: LU). And others like Corona Networks Inc. seem to be on their last legs. But some analysts say that CoSine still has a chance (see Is Celox Farewell an Omen?).

“I haven’t completely written them off, because I think they still have a market to pursue,” says Mitchell. “It may not be as large as we once predicted, but there is still a niche opportunity out there.”But Mitchell is cautious about hyping the announcement too much. “I think it’s too early to say that Cisco and Juniper need to watch out.”

It’s clear that this win was important for CoSine in terms of perception, but as far as its bottom line, it likely won’t have a huge impact. CoSine officials would not disclose the terms of the contract, but the press release states that KT is only planning to deploy the boxes in nine points of presence.

While this latest win is a positive milestone for the company, it still has a long way to go. The company only generated about $5.2 million in revenue for the third quarter of 2003. It will be reporting its fourth-quarter earnings on January 29th. With a stock price of only about $4.75 per share, the company has already been approached twice by a private company looking to liquidate its assets (see Floridians Bid for CoSine ). The board of directors has rejected both bids (see CoSine Rejects Takeover Bid). Officials wouldn’t comment on this matter.

— Marguerite Reardon, Senior Editor, Light Reading