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Optical/IP

Laurel Scores at Level 3

Today, Laurel Networks Inc., an edge router startup, announced its first customer win, Level 3 Communications Inc. (Nasdaq: LVLT) (see Level 3 Picks Laurel Networks).

Analysts had expected the announcement, since news had been leaking out about the deal since the gear was installed at the end of 2001.

Laurel’s edge router, the ST200, has already been deployed in more than 33 cities in Level 3’s network across the U.S. and Europe. While today’s announcement said nothing about the deal being an exclusive contract, Steve Vogelsang, cofounder and vice president of marketing for Laurel, said that the ST200 is the only switch he knows of being used to deliver Level 3’s MPLS-based Ethernet private line, Asynchronous Transfer Mode (ATM), and Frame Relay services.

Level 3 announced that it was offering this service back in December 2001 but did not reveal who was supplying the routing gear until today (see Level 3 Launches Ethernet). Vogelsang says the company began booking revenue on the deal back in January, although he would not give specifics on the size of the contract. He also said that Level 3 is expected to continue deployments in more cities.

But Level 3’s difficult financial state could put some of that future revenue into jeopardy. Level 3 has been struggling to generate new revenue to keep up with its payments on its $6 billion worth of long-term debt (see Level 3 Software Play Has Perils). Vogelsang says Laurel is not concerned with Level 3’s financial issues, and he believes the company will continue to be a strong customer. While Laurel claims to have other customers, Vogelsang admits that Level 3 is the largest and most significant.

“They seem to be in pretty good shape in terms of cash,” says Vogelsang. “We haven’t had any issues to date. And we don’t expect any in the foreseeable future.”

Regardless, Laurel still has a tough road ahead of it in the edge router market. Not only does it compete against Cisco Systems Inc. (Nasdaq: CSCO), which dominates this market with a whole slew of offerings. It also must now contend with the combined Unisphere Networks Inc./Juniper Networks Inc. (Nasdaq: JNPR) powerhouse (see Juniper Nabs Unisphere for $740M). Unisphere has gained marketshare in this space over the past year, particularly in Asia and Europe. Juniper has seen sales of its M5, M10 and M20 edge platforms growing, as well. The combined company will likely give many in this market a run for their money.

Some analysts are encouraged by Laurel's strong technology.

“You can think what you want about Level 3's financials,” says Steven Kamman, an analyst with CIBC World Markets. “But technologically, these guys know what they're doing. And to get the stamp of approval from the guy who invented the Martini draft is a pretty nice endorsement to have.”

Luca Martini, senior architect at Level 3, is the primary author of the Internet Engineering Task Force (IETF) Martini Draft, a Layer 2 Multiprotocol Label Switching (MPLS) implementation of virtual private networking (VPN). It's become one of the de facto standards for many edge routing companies, even though it actually hasn’t been ratified by the IETF yet. At this week’s Supercomm 2002 tradeshow in Atlanta, 21 vendors are involved in a live demonstration of the technology.

Kamman believes the next big customer win for edge routers will come from one of the RBOCs. Exactly which edge router vendor wins will likely be determined by which technology team within the carrier is buying the gear.

"If it's someone with an ATM bias, Laurel may not get it," he says. "But if it's someone with a Frame Relay background, I'm sure Laurel will be in the running."

— Marguerite Reardon, Senior Editor, Light Reading
http://www.lightreading.com For more information on Supercomm 2002, please visit: Supercomm Special
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Emily2 12/4/2012 | 10:18:42 PM
re: Laurel Scores at Level 3 Didn't EXTR spend untold $$$$ and time developing MPLS linecards and IDC billing Software for LVLT?

We heard that EXTR was settling a LVLT contract as well?
capolite 12/4/2012 | 10:18:41 PM
re: Laurel Scores at Level 3 LVLT was incensed at having to pay Laurel a fair price since they were Laurel's only prospect. The services they launched have generated no significant revenue and Laurel's "sale" to LVLT is a net loss. Why would vendors do business with a company like LVLT at a loss? It seems so 1999.
Holy Grail 12/4/2012 | 10:18:39 PM
re: Laurel Scores at Level 3
Capolite

How can you argue on the one hand that Level 3 were unhappy paying Laurel a fair price, at the same time claiming that Laurel sold equipment at a loss? I'm having some trouble understanding this logic!

It looks to me like a tier one international IP network operator selected Laurel equipment for deployment rather than equipment from Cisco or Juniper, both of whom are incumbent vendors!

Seems to me this is a good thing for Laurel and a bad thing for Cisco and Juniper?


GlassyEyed 12/4/2012 | 10:18:36 PM
re: Laurel Scores at Level 3 If it is that easy to strike a deal with L3, why have so few done it? Do you mean to tell us that no one else wanted to do business with L3? Laurel won this business. Plain and simple.

Marconi's aquisition of FORE was no worse than 3Com's aquisition of US Robotics or Cisco's aquisition of (take your pick) or Lucent's aquisition of (take your pick) or Nortel's aquisition of (take your pick). Buyer beware.

BobbyMax 12/4/2012 | 10:18:36 PM
re: Laurel Scores at Level 3 It is always easy to strike a deal with Level 3 as it is in a lot of troule in terms of profitability and viability of VOIP business.

Marconi that acquired Fore Systems was essentially cheated by Fore Systems. Marconi did not make any money as a result of acquisition of Fore Systems. A lot management employees have Fore background.
GlassyEyed 12/4/2012 | 10:18:36 PM
re: Laurel Scores at Level 3 A few things:

Firstly, any start up would gladly take bad margins, and even a loss, to get revenue right now. Especially with a large carrier. This isn't AlaskaNet or Marietta FiberNet, a la Coriolis, this is a real carrier.

Second, many of the Laurel execs are former FORE people. FORE had a good amount of business with L3, so the key relationships were already in place and they leveraged them.

Third, L3 may not be generating revenue on the new services yet. Who is? But Laurel still had to compete for this business. And they won it. Apparently they have enough substance to their technology as well as the willingness to design what L3 wanted and meet their price points. This business did not go to Cisco or any of the other "established" router vendors. Nor did it go to Vivace or Wavesmith etc.

So Good for them !!!!
GlassyEyed 12/4/2012 | 10:18:34 PM
re: Laurel Scores at Level 3 All of these guys are major resource drains, that's true. If not L3, Q, WCOM then who? Sprint, SBC, BellSouth, Verizon (not being a wise guy, just asking where you believe the opportunity exists TODAY)?

If nothing else, this will give Laurel the chance to develop as a vendor. Hone their support organization, manufaturing and operations and put them in position as a valid vendor to compete for more business.
light-headed 12/4/2012 | 10:18:34 PM
re: Laurel Scores at Level 3 good win for laurel... however, if you have to spend a lot of resources and time getting into a major carrier account, LVLT is not the account that you want. neither is Q or WCOM for that matter. you have to win the ones that have money, revenue, customers and will still be around in 2 years.

light-headed 12/4/2012 | 10:18:33 PM
re: Laurel Scores at Level 3 you answered your own question. SBC, Verizon and Bellsouth are all much healthier and better customers to have in the long term.

LVLT only has the cachet of martini attached to it.

Don't forget the MSOs as well... TCI/TimeWarner, Cox, Comcast, etc. They have money, customers and access to customers.
GlassyEyed 12/4/2012 | 10:18:32 PM
re: Laurel Scores at Level 3 I agree. And the MSO's are spending money, but mostly with MSO centric vendors. Tough nut to crack as an optical metro player. At least so far.
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