Optical/IP Networks

Kestrel Quietly Reconfigures

Kestrel Solutions Inc., an optical networking company building products with FDM (frequency-division multiplexing) technology, looks to be changing its focus. Sources close to the company confirmed yesterday that it had laid off about 120 of its employees last Thursday in an effort to clean house and further slim down operations.

Kestrel executives are keeping their lips sealed regarding the layoffs. Alan Schwartz Ocio, vice president and general counsel for Kestrel, said the company wouldn’t comment or give out any details about its status until it finishes the acquisition of TeON, a small optical transport company that Kestrel agreed to buy for an undisclosed amount on June 13th (see Kestrel to Acquire TeON).

Buried at the bottom of the press release announcing the TeON acquisition, Kestrel also threw in another surprise. Brian Jervis, president and chief executive officer of Kestrel, and John Barter, chief financial officer, had left the company. Marty Kaplan, TeON’s CEO and the former chief technology officer for Sprint Corp. (NYSE: FON), was named Kestrel’s interim CEO.

The layoffs, the shift in top management, and the merger all indicate a major reconfiguration at the company.

Last week’s layoff is the second one for the company in the past two months. At the end of May, it announced it was reducing its workforce by 16 percent in order to cut costs (see Kestrel Announces Layoffs). Back then, many of the casualties were contract workers, but this time the layoff included most of the marketing team, including Amar Senan, vice president of business development and marketing.

Following the first layoff, the company canceled plans to open a facility in Ottawa, supposedly nixing another 19 people who would be employed at that location, says one source. Then in June, it suddenly announced plans to acquire TeON, a small seven-person concern affiliated with Milcom Technologies Inc., a company that markets technology developed by the military for commercial use.

Strangely enough, Milcom is also an investor in Kestrel’s key competitor Centerpoint Broadband Technologies Inc., which has also been developing an FDM-based product that supposedly handles transmission rates up to 40 Gbit/s. But Matt Bigge, president of Milcom Ventures says he sees no conflict among any of these companies.

“Their [Kestrel and Centerpoint] initial product ideas were headed in the same direction way back,” he says. “But from what I’ve seen lately, Centerpoint has moved in the direction of integrated communications with its wireless division. Kestrel has been more focused on the metro loop.”

FDM technology crams multiple streams of traffic into a single optical wavelength. This is in contrast to the more pervasive DWDM (dense wavelength-division mulitplexing) technology, which crams multiple wavelengths into a single optical fiber strand. The technologies are not necessarily competitive, as they are used for different applications.

A year ago, Kestrel seemed to be living the venture-capital dream. It had raised over $187 million and was targeting incumbent metropolitan area carriers, mainly the RBOCs, with FDM technology that was supposed to allow them to use existing fiber to transmit traffic at speeds up to 10 Gbit/s, something that couldn’t be done with existing TDM/Sonet technology. What’s more SBC Communications Inc. (NYSE: SBC), one of the largest RBOCs in the country, had agreed to test Kestrel’s products.

But FDM may be a technology in search of a problem, says Scott Clavenna, president of PointEast Research LLC and director of research at Light Reading.

Instead of using time slots to multiplex traffic over several wavelengths like traditional time-division multiplexing (TDM) and Sonet technology, FDM uses different frequencies on one wavelength to carry traffic. Because FDM minimizes dispersion at high data rates, it can be used to transmit traffic at speeds up to 10 Gbit/s over any grade of fiber. This is different from TDM, which can only transmit traffic at high speeds over high-quality fiber.

The idea behind Kestrel’s solution is that RBOCs, which already have fiber installed in the ground, could use its gear to provide high-speed services over fiber that otherwise would not be able to support TDM-based OC192 transmission.

But there are a few problems with this solution. For one, 10-Gbit/s OC192 technology hasn’t seen the quick uptake that Kestrel and Centerpoint had hoped for. Additionally, traditional Sonet implementations handle traffic at speeds of OC48 (2.5 Gbit/s) and below well enough on existing fiber, that there’s really no need for the FDM solution right now, says Clavenna.

And the fact that the cost of fiber continues to drop at a rate of about 60 percent a year, while there is currently a glut of dark fiber, means technologies that maximize dark fiber are relatively unnecessary.

“A year or two ago everyone assumed there would be this massive need for bandwidth in these networks,” says Clavenna. “But it’s not true. You can get fiber pretty cheaply now, and you can get a Cerent [Cisco] box with OC48 interfaces to build a high-capacity network relatively inexpensively.”

- Marguerite Reardon, Senior Editor, Light Reading

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