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Optical/IP

Reality Bites at NGN Conference

BURLINGAME, Calif. -- The once bubbly excitement of the optical-networking startup scene has rapidly shifted to a new reality.

Nowhere is that new, bleak realism more evident than at the Next-Generation Network Ventures conference that opened here today. NGN participants are currently fighting hard to define the parameters of optical technology -- while watching funding dry up as potential customers and investors keep their wallets closed (see Money Crunch Pressures Startups).

Surviving the slowdown was the mantra of Tuesday morning's discussions at the show in Burlingame, Calif. Host John McQuillan, chairman of the conference and president of McQuillan Ventures, tried to kickoff things with a positive spin, saying: "A downturn favors upstarts." But nobody at the conference could ignore the current slowdown affecting the entire telecom-focused industry, a trend highlighted by Monday's now-recurrent earnings warning from bellwether Cisco Systems Inc. (Nasdaq: CSCO) (see Cisco's Inventory Woes Mount).

Only a year ago, McQuillan's analysis of the networking startup industry was that selling your startup for $100 millon was a worst-case scenario. But in 2001, he sunnily notes, "Going out of business has returned as an option."

As service providers and other large customers buy less equipment, the trickle-down effect has hit component suppliers the hardest. Many are now scrambling for ways to stay alive.

"The trickle-down for these guys [component vendors] is quite severe," McQuillan says.

Bob Lucky, corporate vice president for applied research at Telcordia Technologies Inc., reflected a general consensus with his belief that many service providers are going to "drag their feet" on building new networks, at least for the next year or so.

"The question is: Will [component vendors] continue to be funded?" Lucky asks.

Meanwhile, optical component vendors are positioning their wares as technology that will drive the systems needed a couple years in the future. According to one venture capitalist, that kind of thinking will be needed to attract investors.

"If Cisco can tell you now that they need it, it's too late for me to make money," says Andy Rappaport, partner with Menlo Park-based August Capital. "So if Cisco has two bad quarters now, I don't care. The question is: Are you working on something that's going to be fundamental, 10 years out? The answer is, for most of the startups, that we don't know yet."

Part of the problem is the infancy of optical components technology, which Rappaport compares to the electronics of the 1940s. "Components producers are still at the stage where they don't know whether to put the pins on the bottom or the side of the vacuum tube," he says. "But it takes time to figure these things out."

Some big bets are being placed on companies basing their products on indium phosphide, which proponents say allows for the production of cheaper, smaller, and faster laser technologies. Another technology that seems to be winning greater acceptance is the VCSEL (vertical cavity surface-emitting laser), which promises greater design flexibility and simpler, less costly production.

During NGN's opening panel presentation, startups Genoa Corp., CyOptics Inc., Bandwidth9 Inc., and Agility Communications Inc. all touted their wares as products that could enable system producers to realize radical pricing and performance shifts beyond current technologies. The startups' main concern right now, however, is surviving long enough to see their predictions materialize.

Larry Coldren, chairman and CTO of Agility, said his company had originally planned to have an IPO right about now, but instead is seeking more venture funding.

"And it's nasty, with the kinds of terms people are asking for," Coldren says, carefully looking around to see who might be listening in during a coffee-break discussion. "But we're not sweating, or at least we're not letting them see us sweat."

Agility, which is building tunable lasers, transceivers, and other dense wavelength-division multiplexing (DWDM) system components, needs to get design wins for "next-generation systems, ones that will be for sale two years from now," Coldren says. "But that doesn't mean we can stop building our fab plant. The systems guys are banging on us harder than ever, telling us not to get out of phase." (See Agility Unveils Long-Haul Laser.)

Rick Gold, president and CEO of optical-amplifier developer Genoa, says he's breathing a bit easier, since his company has almost $100 million in funding (see Genoa Announces Product, Funding). But he feels that more, not less, innovation is going to be required from component vendors.

"There's no doubt that deployment [timelines] of the next-generation networks have been driven out some," Gold says.

Several speakers said the current shakeout is a good thing for the industry, since the fund-anything-optical trend of the past couple years produced more companies than the marketplace could sustain.

"I was at the OFC show, walking around looking at all the booths, wondering how all those people were going to make money," Telcordia's Lucky says (see OFC Report) .

"The funding of the last couple years has led to a stunting of figuring out how systems should be built," August Capital's Rappaport says. "A downturn in the industry could be the best thing that could happen to optical innovation."

But beauty, of course, is always in the eye of the beholder.

"It's easy to say a shakeout's good," Genoa's Gold notes. "But it all depends on whether you're the shaker, or the shakee."

-- Paul Kapustka, Editor at Large, Light Reading http://www.lightreading.com

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gladysnight 12/4/2012 | 8:33:03 PM
re: Reality Bites at NGN Conference ". Someone, anyone, who figures out a clever, low cost way to extend the footprint of the local TelCo so high speed internet can reach mom and pop is going to be the winner in this sweepstake."

In New Zealand, some years ago, the local Phillips subsidiary (iirc) made an ISDN-based device that provided 128Kbps in both directions, and allowed you to answer a phone call while it dropped down to approx 75Kbps.

It had a range of 20 kilometres, or about 12.5 miles, and could have been easily adapted for curbside deployment ot further extend coverage from the CO.

Naturally, no-one was interested because xDSL was going to save the world.

:-(
netskeptic 12/4/2012 | 8:33:03 PM
re: Reality Bites at NGN Conference > We need to develop a high bandwidth application
> that everyone will want to use. Porn is not
> gonna do it.

I am dreaming to be able to mount disks for my home computers across the net from my local telco/cableco/xxxco, so I will be spared a necessity to hear drive noise, to do back ups in heterogeneous environement with various windoze and various unixes along having a fun job of time to time recovering from disk crashes.

Unfortunately, this is a faaaaaaaaar outstanding dream: I am outside DSL and ISDN range, my cableco promised Internet access in the second half of 2002 and none of which will provide enough bandwidth anyway. So, when I am at home I am using 56K modem which would not go over 43K because of bad line I have.

Thanks,

Netskeptic

switchrus 12/4/2012 | 8:33:03 PM
re: Reality Bites at NGN Conference +ˇWe need to develop a high bandwidth application
> that everyone will want to use. Porn is not
> gonna do it.

> I am dreaming to be able to mount disks for my home computers across the net from my localG«™

+ˇUnfortunately, this is a faaaaaaaaar outstanding dream: I am outside DSL and ISDN range, my cableco

Am I missing something here ?

Everyone is looking for the G«£killer applicationG«• that drives bandwidth requirements. IMHO itG«÷s not the killer application that will drive the need for bandwidth, itG«÷s what you just expressed. The need for reasonably fast, read that non 56 k modem, connectivity to the internet for the checking the bank balance, looking at the news, shopping for the latest dohickey for the garden type of thing that mom and pop middle America canG«÷t do today. When you think about it, how much of the country is within the footprint of the local telcoG«÷s switching plant to support DSL or even cable modem service? While business applications are real, and the ability to reach your customer with your latest Flash enhanced web site is what the IS department has convinced company management that the internet is all about, mom and pop middle America is where the real action is at. Someone, anyone, who figures out a clever, low cost way to extend the footprint of the local TelCo so high speed internet can reach mom and pop is going to be the winner in this sweepstake.

How about one of these very cleaver wonder kinder start ups come up with an affordable solution to the very problem that you mentioned in your previous messages and see what happens.
switchrus 12/4/2012 | 8:33:02 PM
re: Reality Bites at NGN Conference >In New Zealand, some years agoG«™

Insert some really bad Kiwi joke about nowG«™baaaaaG«™..LOL

Naturally, no-one was interested because xDSL was going to save the world.

Yep itG«÷s a really hard sell to convince VCG«÷s that thereG«÷s gold in them there mom and pop hills. Why just look at the story that Winstar sold to convince quite a few VCG«÷s and other folks that roof top 36 Ghz last mile solutions were the catG«÷s pajamasG«™.WHOOPSG«™whatG«÷s TerabeamG«÷s business plan?G«™.but I digress.

Still think the answer to the proverbial G«£WereG«÷s/whyG«÷s the bandwidthG«• needed question is not in the business world, but is in middle America.

Hmmmmm
gladysnight 12/4/2012 | 8:33:02 PM
re: Reality Bites at NGN Conference "Does anyone have any speculation on what will need to happen to turn our industry around?"

Speculation? I dunno, how about common sense instead? Could it be that the optical networking business is just a business like any other? Naaaaa . . . .

1. Make products for specific customer segments/needs.
2. Build them either better, faster, or cheaper.
3. Sell them

Easier said than done, true, but easier done than building castles in the air.
flanker 12/4/2012 | 8:33:01 PM
re: Reality Bites at NGN Conference "Easier said than done, true, but easier done than building castles in the air"

Tell that to the rocket scientist VCs in silicon valley. They're too busy trying to find a sucker in the mezzanine round for their castles to actually fund real companies.
optinuts 12/4/2012 | 8:32:58 PM
re: Reality Bites at NGN Conference the killer apps are here. they are streaming audio and streaming video. the means to get there, broadband access, is not there.

the US is paying the price for a strong local monopoly that the telecom reform act actually strengthened at the cost of the IXCs.

the RBOCs do not want to trade in their T1 prices for xDSL prices. they want to maintain the status co, and as the RBOCs go, optical networking goes too. its no surprize that the healthiest service providers these days are the RBOCs.
voyeur 12/4/2012 | 8:32:56 PM
re: Reality Bites at NGN Conference How true!!! The ILEC's of this world are still trying to milk their old infrastructure for all it's worth. Then the CLEC's almost dragged them kicking and screaming into the 21st century, but the stock market took a dive and put the squeeze on them.

I remember a year or so back that SBC initiated Project Pronto, but the hitch was that they used Alcatel DSLAM's in their CO's. Why do I mention this? Because that actually limited the CLEC's choices and even prevented them from using DSLAM's at remote terminals. Other vendors have made DSLAM's for remote terminals, which would extend the range served vs CO range limits. Hence, the CLEC's couldn't serve as many people and could create less revenue. No revenue, no business, no competition.

IMO, if the FCC and the state regulatory commissions can actually get the RBOC's and IXC's to compete against each other, then the whole industry would benefit. Until then, we are going to get there at the ILEC's pace.
dietaryfiber 12/4/2012 | 8:32:54 PM
re: Reality Bites at NGN Conference Putting DSLAMs in RTs has to rank with the one of the worst ideas of all time.

RTs are space and power constrained. Look at a Stinger (as an example) and explain why for 70 so so lines (10% take rate off of a 672 line RT) that this is a good idea.

The CLECs are actually the problem as RT unbundling issues are creating cost models that make no sense. This is, of course, wholly supported by the cable guys who want to slow things down as much as possible.

The CLECs are not interested in serving $39/month DSL to residences. That is what RT DSL is about. The CLECs want $200/month SDSL to businesses, well they wanted it before they went out of business.

Jimi 12/4/2012 | 8:32:54 PM
re: Reality Bites at NGN Conference C'mon!

Streaming audio and video? No way! Mom and pop need this????

I may download music from sites like Napster but I don't stream audio or video all day long. I won't accept that these are the KILLER APP like you claim. Unless you're going to be at your computer annoying your neighbor with Ravi Shankar music, streaming audio is not the killer app. Streaming video for games or porn? There's a market out there but it's not huge and again, I doubt that a huge majority of us are going to sit in front of our computers all day to do it.

So think of something we ALL can use 24 hours a day. Apps like streaming audio and video are much like my porn analogy.....it's not enough to convince the majority of end user to upgrade from DSL or Cable. If you can't get the majority of end users to switchover to something like ethernet at home, then who will need/buy all these next generation optical solutions?

$$$
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