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General Bandwidth Inks Alcatel Deal

Light Reading
News Analysis
Light Reading
4/29/2003

General Bandwidth Inc. is the latest startup to strike up an important OEM partnership with a “big brother,” this one being with Alcatel SA (NYSE: ALA; Paris: CGEP:PA).

In the deal, Alcatel will resell, support, and integrate General Bandwidth’s G6 platform, an integrated access switch designed to carry voice and data applications over ATM in fiber access networks. The G6 has a 60-Gbit/s backplane and supports IP, ATM, and TDM.

Any deal between a startup and a large OEM partner is an important one for a startup these days. Carriers are increasingly demanding the support of a deep-pocketed partner before they’ll consider startup technology. It’s also an important strategy for success for startups in an age in which growth has slowed and acquisitions have dried up. One example of how an OEM strategy can carry a startup is WaveSmith Networks Inc.’s OEM agreement with Ciena Corp. (Nasdaq: CIEN), struck shortly before Ciena decided to acquire the company.

”Yes, there’s a need to work with a big brother," says Ken Cavanaugh, director of business development with General Bandwidth. “But it works both ways -- with large companies there are large cutbacks, and they can’t support a lot of products, so they need the help of startups.

General Bandwidth is positioning its G6 product as a “migration platform” for carriers that want to move to voice-over-IP without replacing their Class 5 switches. They also will market the switch for other applications, such as sending voice over T1 lines. In the case of the deal with Alcatel, the first large deployment of the G6 will be in an SBC Communications Inc. (NYSE: SBC) fiber to the home (FTTH) project in Mission Bay, Calif., to deliver a “triple play” of voice, data, and video services (see SBC Takes a Dip Into PON).

But the SBC project, which has been underway for quite some time, is small and experimental in nature, raising the question of how much money General Bandwidth could possibly get in the deal. At least one analyst says growth potential for the G6 platform is limited in the near term by the size of the market it is pursuing.

"It's a good deal for General Bandwidth, but voice over broadband is a niche market these days," says Kevin Mitchell, and analyst with Infonetics Research Inc. "They'll have other opportunities when they integrate their [VOIP] softswitch into the platform." Mitchell also notes that the SBC FTTH project is "very small scale." General Bandwidth, which last raised about $88 million in 2001 and has raised a total of $170 million, says it’s got enough money to get to profitability, and that it’s already generating significant revenue with its customers, which in addition to Alcatel include Focal Communications Corp. (Nasdaq: FCOM), Hancock Telecom, Qwest Communications International Inc. (NYSE: Q), and SBC. It has roughly 85 employees.

— R. Scott Raynovich, US Editor, Light Reading

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