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Optical/IP

Dude, There's My Carr!

As CEO of Tellium Inc., Harry Carr oversaw one of the steepest rags-to-riches-to-rags stories of the telecom boom. Now he's back in telecom.

Carr resurfaced this week as CEO of Simpler Networks Corp., a 70-employee Montreal company with a smattering of U.S. staff, including Carr. It's a less glamorous niche -- main distribution frames, which manage the tangle of copper wiring in the central office -- but the company has a newfangled automation technology that Carr says he finds intriguing.

Chipper as ever, Carr told Light Reading that he's been taking time off since the Tellium saga closed and only recently began sifting through job offers. He's not necessarily apologetic about the controversy that surrounded his Tellium exit -- the executive loans, the merger with Zhone Technologies Inc. (Nasdaq: ZHNE) -- but he admits that, to coin a phrase, mistakes were made.

None of this comes out in Simpler's Dec. 13 announcement of Carr's arrival. The release trumpets Carr as a "proven leader" who took zero-revenue Tellium to its IPO and eventually to a "successful" acquisition by Zhone last year (see Tellium's Harry Carr Resurfaces). That's not quite the image held by many Tellium shareholders, particularly as Carr faded from view while the company underwent layoffs and dismal earnings reports (see Dude, Where's My Carr? and Dude, Where's My Revenues?).

When Carr became CEO in 2000, the optical networking industry was declining, but Tellium was on the rise. Deals with the likes of Cable & Wireless plc (NYSE: CWP) and Qwest Communications International Inc. (NYSE: Q) helped the company go public, raising $135 million at a time when optical stocks were getting hammered. Soon, Tellium's valuation hit the $2 billion mark. (See Tellium Gets New Boss, Is Tellium Ready for an IPO?, and Tellium Feels Alright ).

But just like on VH1: Behind the Music, it all went horribly wrong. Tellium fell prey to the struggles of the optical networking industry. As the company cut staff drastically in mid-2002, it also saw business evaporate; executives at one point admitted that an expected $30 million in sales for one quarter had reduced to just $3 million (see Dude, Where's My Carr? and Dude, Where's My Revenues?).

Tellium came to a controversial end when it was acquired by Zhone in November 2003. Observers assumed Zhone did the deal just to grab Tellium's stash of cash as well as its stock listing, although officials of both companies swore this wasn't the case. Still, Tellium had $150 million left in the bank, even after the downturn, while Zhone had burned through nearly all of its $500 million in venture funding (see Zhone Cashes In on Tellium and Zhone Cashes In on Tellium, Part II).

The real fun came a couple of months after the merger was announced, when Zhone forgave $21.6 million in loans that Tellium had made to its executives including Carr, loans made so the executives could exercise stock options. Zhone also paid off the execs' taxes related to the loans. (See Tellium Execs in Trouble? and Zhone Forgives Exec Loans.)

Carr won't discuss the loans other than to say the matter was resolved "to everyone's satisfaction." To be fair, the practice did not originate with Tellium. "At the time, there were lots of companies that did loans," Carr says. "Do I wish we never did it? Of course -- but that's 20/20 hindsight. It wasn't my idea. In recruiting the team, we had somebody who asked for it, and the board thought it was a good idea."

What bothers Carr more than the loans is a decision that shut out Tellium's executive team from the IPO spoils. "If I could take back one piece of history, that would have been it," he says.

As the 180-day post-IPO lockout period reached expiration -- meaning executives would soon be able to sell stock -- Tellium's board approved an extension of 75 more days. The idea was to show the market that the executives had faith in the company's future. "We believed we were going to get through this," Carr says.

The bet might have paid off, but several Tellium sales fell through, including a showstopper with Deutsche Telekom AG (NYSE: DT) (see Tellium Looks to Make Its Marks). The stock sank accordingly during the 75-day extension, wiping out potential profits for the execs.

Whatever Tellium's mistakes might have been, Carr points out that everybody in that market suffered. "If you look at the rest of the optical switching business, no one's gone anywhere. Sycamore hasn't gone anywhere. Ciena hasn't gone anywhere. Lucent and Nortel killed their products," Carr says. "If we had actually gotten DT instead of the project being canceled, it would be a different world."

As for the claim Zhone bought Tellium just for the cash, it wasn't supposed to be that way, Carr says. "That certainly wasn't the intention at the time. The understanding we had was that they were interested in the technology," he says.

But whether by design or a sudden realization that optical switching wasn't that lucrative, Zhone eventually closed Tellium's Oceanport, N.J. office, moving the remaining development and support functions to Zhone's Oakland, Calif., home (see Zhone Closes NJ Center).

Simpler seemed like an intriguing bet, Carr says, although he says he first had doubts about the business of making automated main distribution frames.

The idea is to remove the manual process by which copper wires are strung from one bank of equipment to another. The cables typically are run through a distribution frame by hand, leaving plenty of room for human error, particularly when connections have to be moved to a different box. Simpler automates the process using a relay based on micro-electromechanical systems (MEMS). The company expects to ship its first product in the first quarter of 2005.

And that might be just the beginning for the return of the Tellium team. Carr notes that former chief technology officer Krishna Bala is putting out feelers for funding his own startup.

— Craig Matsumoto, Senior Editor, Light Reading

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