Looking Glass Breaks Through

Looking Glass Networks, a facilities-based startup carrier, announced its "debut" today with the publication of network locations, key customer names, and a supplier relationship with Cisco Systems Inc. (Nasdaq: CSCO) (see Looking Glass Launches).

The news may not be its debut, but that the startup has managed to come this far. Looking Glass, which first announced itself in June 2000 (see Looking Glass Comes into Focus), has hardly been in stealth mode since then (see Looking Glass Sees $275M Round and Sorrento Wins With Looking Glass). Indeed, the company's been working hard in a very public way.

The results include a dark fiber and co-location service and Sonet, wavelength, and Ethernet services in nine U.S. cities. All are geared to a customer base of other carriers, including Allegiance Telecom Inc. (Nasdaq: ALGX), Focal Communications Corp. (Nasdaq: FCOM), Universal Access Inc. (Nasdaq: UAXS), and Williams Communications Group (NYSE: WCG), as well as a range of large enterprises.

Looking Glass has achieved all this in spite of the risks. Facilities-based carriers must stake enormous capital in a highly competitive market dominated by firmly entrenched incumbents. And the metro market appears to be nothing short of a crapshoot these days, with some leading analysts labeling it a money pit. Even other "Cisco-powered" startups like Cogent Communications Inc. appear to be struggling against these odds (see Cogent's Reverse Prognosis).

Can Looking Glass succeed where others have struggled and failed?

Yes, says its management. In an interview with Light Reading yesterday, cofounder and CFO Sunit Patel laid out the reasoning:

  • One funding round. "We didn't take multiple rounds of funding." Instead, the founders, including Patel and CEO Lynn Refer, tried to plan out what they'd need and get it in a single go, avoiding the need to raise money in the midst of network development. The team raised $475 million in cash and $275 million in credit facilities before it got fully underway.
  • Conservative spending. Looking Glass appears to have stayed within budget in getting its nine city networks up and running. Patel says the firm spent about $225 million and still has a lot left to draw on, even as it's taking in its first revenues.
  • Focus on the present market. Looking Glass is starting out by answering the call for alternatives to expensive RBOC connectivity by other carriers. Right now, 60 to 70 percent of Looking Glass's revenue is coming from dark fiber alone. Also, because it has its own facilities, the startup can charge less for provisioning new Sonet circuits than the incumbents, who are restricted to high-maintenance ring-based networks. So it's doing well there too, Patel says.
  • An eye on the future. Looking Glass isn't betting the bank right now on Ethernet or wavelength services, but it's offering them and should therefore be able to win its share of early adopters before these services take hold (see The Lost Year ).

    Analysts say Looking Glass seems to have a good shot at success, particularly thanks to their focus on wholesale bandwidth. "End-user applications aren't there, but the bandwidth need is already well established among other carriers," says Daryl Schoolar, senior analyst with Cahners In-Stat Group. "Dark fiber can be a real advantage. That's how Qwest started out."

    But Looking Glass faces clear downsides, including stiff competition. Schoolar notes that a small but growing roster of carriers like XO Communications Inc. (OTC: XOXO) have their bid in for the same customers Looking Glass seeks. XO has its own roster of next-generation services and its own facilities.

    Schoolar and others say the metro market itself is risky because of the capex slowdown and the relatively slow adoption expected for metro services. "The Ethernet MAN market is in its infancy. Even in 2003, we expect no more than $200 million in revenues from it," he says.

    Others agree that the metro market will be typified by slow and hard-won growth. "We believe that most investors incorrectly view the metro market as a nascent, high-growth opportunity," write David A. Jackson, Arif Mawji, and colleagues in a recent report from Morgan Stanley Dean Witter & Co. Instead, growth will be slow, and key customers "will determine the winning technologies."

    If that's the case, Looking Glass has at least started out in the right direction.

    — Mary Jander, Senior Editor, Light Reading
  • LightMan 12/4/2012 | 11:04:19 PM
    re: Looking Glass Breaks Through Met with their CIO a while back and it looks like they have a very implementable and modular working solution for their OSS. Not too heavy like others, and very "purpose-built".

    watchtower 12/4/2012 | 11:04:13 PM
    re: Looking Glass Breaks Through They should. They killed enough of the ISV's software testing it. They've also raised so many red flags over payment for service that many OSS suppliers wouldn't touch them. This is a dog account for any software liciencing company. Their opps folks had (and still don't) have any idea what they need from their OSS. They've been treating their OSS suppliers like SIs.

    By the way, "purpose-built" is another way of saying "one-off." If they change their netwok even slightly, it's going to cost them tens of millions in "re-purpose building" their OSS.
    LightMan 12/4/2012 | 11:04:11 PM
    re: Looking Glass Breaks Through I disagree. Their modularity in their architecture shelters them from completely having to redesign their entire OSS - as much as could be expected. The modularity also provides them with a hedge against a failed OSS implementation.

    And since when is it the provider's fault that the ISV's s/w doesn't work as advertised?

    watchtower 12/4/2012 | 11:04:11 PM
    re: Looking Glass Breaks Through my mistake to imply that the software didn't work as advertised.
    HarveyMudd 12/4/2012 | 11:03:56 PM
    re: Looking Glass Breaks Through It is surprising that Looking Glass would spend capital and resources in a very crowded market space. The company has nothing to compete with. It will be very difficult for the company to stay competitive. IOt probably cannot raise any other capital.
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