ATLANTA -- Supercomm -- Four startups are setting the pace in the design of IP data service nodes for next-generation wireless networks, and they are battling for the attention of the operator community.

These nodes enable the provision of the data (and in one case, voice) services that are regarded as the lifeblood of third-generation offerings. But can these unknowns persuade the wireless carriers to complete some order forms before their startup funding runs dry?

The four young hopefuls -- Megisto Systems, Starent Networks Corp., Tahoe Networks, and Watercove Networks Inc. (which has a booth here at Supercomm 2002) -- face a challenge in persuading cash-strapped carriers, which are already investing huge sums in network rollouts, that they need install this specialist equipment. Particularly as this would involved actually investing money in providing sophisticated wireless services -- rather than just talking about them -- when there's very little solid evidence of how much revenue these services will generate.

"They're forging a new market for mobile data gateways," says Phil Marshall, program manager of mobile and wireless technologies at Yankee Group. However, he reckons that the next 12 to 18 months will be crucial for the companies to move beyond customer trials, often with unnamed operators, and actually get their products into carrier networks. "The most important thing for them is to establish incumbency," he says.

All of the companies are making similar technology, aimed at replacing the service nodes -- called packet data service nodes (PDSNs) in CDMA networks and gateway GPRS support node (GGSNs) in GSM networks -- in 2.5G networks and above. These nodes handle roaming and provision network-level services for the user. They allow a subscriber to access third-party networks and corporate services.

Despite the technological similarities, the companies all tend to focus on different sectors of the market and emphasize certain "sweet spots" for their kit. Megisto has its eye on the GPRS market and says its mobile IP-based gateway will allow roaming among GPRS, wireless LAN, and Bluetooth networks.

Such functionality is crucial if Megisto is to make waves in the U.S market, according to Gordon Saussy, CEO and cofounder of Megisto Systems. "I think that in the U.S, wireless LAN will play a really significant role," he told Unstrung recently. Megisto is expecting to announce deals with two European carriers.

Watercove has a foot in both the GSM and CDMA camps. Its key proposition is the enablement of virtual mobile network operators, pushing its platform as an easy way for an operator to allow another company's branded service to ride on its network. The Watercove system keeps the "guest" service provider's data separate from the operator's traffic.

Starent is betting on voice. It has developed a node that can sit in current CDMA networks and enable voice-to-data conversion, and vice versa. This, for example, would allow the carrier to offer a service whereby a user could dial in and listen to his or her email. However, Starent president and CEO Ashraf Dahod says the company also plans to get into the GGSN market.

"As an extension of the existing voice platform, there's clearly a place for it, as long as the carriers market it properly," says Yankee's Marshall.

Tahoe, meanwhile, is very focused on service creation -- offering a variety of different, targeted services using the same data streams -- and the "mobile ecosystem," according to Marshall.

These companies don't have the market to themselves, though. All the established networking companies have bought companies or formed partnerships as a way to get in on the service node act. Cisco Systems Inc. has teamed up with Motorola Inc., while Nortel Networks Inc. bought Shasta. Lucent Technologies Inc. acquired Spring Tide Networks in September 2000; Ericsson AB has a joint venture with Juniper Networks Inc.; and Nokia Corp. bought Amber Networks in July 2001.

So why are we even talking about four startups when the big boys look to have the market sewn up? "All the major companies are taking infrastructure that was designed for the fixed network and shoe horning into a mobile environment," says Marshall. Indeed, all the analysts Unstrung spoke to agreed that the startups' equipment was faster, more scaleable, and would enable carriers to get wireless services up and running more quickly than anything the major players have to offer.

Will we see a wave of consolidation as Cisco et al snap up the small companies like herons at a well stocked ornamental pond? Well... not quite yet. Marshall figures the IP service node market is not yet big enough to excite the interests of the major players, which are focused on the much larger deals to be found in the radio network market. But he thinks the equipment vendors will start to get interested when the carriers start asking for kit that can support new data services and provisioning.

Megisto's CEO agrees. "I don't see any acquisitions in the current environment," says Saussy.

So these startups are playing a waiting game in a market that may not grow fast enough to keep them all alive. "I think Megisto is in a good position, funding wise," says Christine Loredo, senior analyst at the mobile wireless research unit of Strategis Group. She also thinks that Starent's infrastructure deal with Samsung Electonics Co. Ltd. is the way forward and that the other companies will need to at least partner with major vendors to survive.— Dan Jones, Senior Editor, Unstrung
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