Qwest Blows Hot and Cold on Startups

Just when prospects for startups were looking bleak at Qwest Communications International Inc. (NYSE: Q), the company's network engineering department has undergone another management shakeup.

Last month, Light Reading reported that Qwest executives were on a mission to reduce the company’s reliance on technology from startups (see Is Qwest Shunning Startups?). Apparently, James L. Becker, Qwest’s then executive vice president of worldwide and IP networks, had told venture capitalists that Qwest needed to limit the type of testing it could do for startup equipment companies.

Qwest was once known as the king-maker of startups, having helped, among others, Corvis Corp. (Nasdaq: CORV), CoSine Communications Inc. (Nasdaq: COSN), Juniper Networks Inc. (Nasdaq: JNPR), and Redback Networks Inc. (Nasdaq: RBAK). But the carrier has been in so much financial trouble lately that word was it could only accept equipment that was ready for general availability.

Well, today a new rumor circulates. Becker has recently moved to another department -- he now becomes vice president of Qwest's new customer operations unit -- and word on the street has it that the new guy on the block, former executive vice president for local networks Augie Cruciotti, will be more lenient on the startups.

Some observers claim that Cruciotti, now executive vice president of network services, has indicated that he wants to use the best technology, regardless of whether its from a startup or not. Even if Qwest never had a policy to shun startups, they say, a change of management could result in a change of attitude about which technologies the company should be funding.

A spokesperson for Qwest, however, said yesterday that the company doesn’t expect there to be any policy changes with the change of leadership in the network services division. The company would not comment on whether it has or has ever had an explicit policy not to buy startup products, and neither Becker nor Cruciotti were available for comment.

Some experts say puzzling over whether the company likes startups amounts to hair splitting, considering that Qwest has larger problems. While Qwest has not been quick to buy startup products over the last months, the company hasn’t exactly been beating on the doors of incumbent vendors either. With its $26 billion debt load, plummeting revenues, massive layoffs, and its capital spending cut to about half of what it was a year ago, Qwest isn’t in much of a position to buy new products from anyone (see Qwest Posts Loss, Preps Asset Sales).

"No one has said, ‘No we won’t buy from startups,' ” says Bart Schachter, cofounder of Blueprint Ventures. “Qwest has been pounded in the market and had to slash its capex budget. Overall, purchasing has been reduced, and that reduction affects all vendors.”

“I can’t remember the last announcement of Qwest buying from anyone,” Doug Green, founder of The Bradam Group, agrees. And that, he says, makes it hard to identify any specific policy at the company to avoid startups. “If they’d been buying a lot, it would be easier to see evidence of a policy.”

And when the service providers are balancing on the edge of bankruptcy, it should come as no surprise that they are less likely to take their chances with new players and new technology. “They’re in no rush to deploy new, advanced services,” Schachter says. “They’re being very conservative.”

Qwest isn’t the only carrier feeling less adventurous. In the midst of a telecom meltdown, almost all service providers are trying to weather the storm by sticking to the vendors they know and feel confident will have the financial strength to see their products through development.

Many applaud this prudent approach as a return to sanity. “Six or seven years ago, most large carriers didn’t buy from startups,” Green says. “If they were interested in a startup’s technology, they would try to get them to send it through a channel that they trusted… through channel partners.” That way, he says, if the startup went under, the channel partner -- for example, Lucent Technologies Inc. (NYSE: LU) -- would guarantee to see the product through development. “We seem to be going back to that model."

— Eugénie Larson, Reporter, Light Reading
http://www.lightreading.com