Laurel Scores at Level 3
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
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