Riverstone Heads to Sacto

Riverstone Networks Inc. (Nasdaq: RSTN) announced another customer today, the second in two weeks (see Riverstone Wins Over Spanish PTT ). SureWest Communications (Nasdaq: SURW), one of the largest U.S. independent telephone companies, has deployed Riverstone’s RS metro routers to deliver Ethernet services across its network.

SureWest has more than 140,000 residential and business customers in the Sacramento, Calif. area. The new Ethernet-based metro area network that has been built using Riverstone’s gear targets businesses and government offices throughout the area, providing services like virtual private networks (VPNs) and virtual private LANs since June of this year.

While SureWest is certainly no Verizon Communications Inc. (NYSE: VZ) or SBC Communications Inc. (NYSE: SBC), each of which supports millions of customers, the deal highlights a segment of the service provider market that has been largely overlooked in the past several years.

Much of the focus on the telecom market has centered around competitive local exchange carriers vs. larger incumbent players. Conventional wisdom holds that CLECs are hurting, while incumbents are now highly coveted for their deep pockets.

But there are also roughly 1,300 independent operators in the United States today. This class of carriers was originally created back in 1934 to ensure that rural Americans would have access to quality telephone services at reasonable rates. In some cases, previously rural areas on now quite populated.

Generally these companies serve one or more small communities, providing telephone and data services to a wide range of customers. Some serve as few as 100 customers, while others, like SureWest, serve several thousand customers. Alltel Corp. one of the largest independent providers in the Little Rock, Ark., region has nearly one million customers.

Many of these independent telcos have introduced new telecommunications technology, including the first automatic switching system and the first installation of a digital switching office. Fiber optic cable and digital switching equipment are common even among the smallest independents. SureWest, for example, was one of the first providers in its region to offer Ethernet service to small and medium-sized businesses.

“They're small but very innovative technologically," says Lynda Starr, vice president of U.S. carrier research for Probe Research Inc. "Part of it is probably because they don’t get bogged down with all the processes and regulatory barriers.”

Many of the larger independent providers are also financially strong, compared to the rest of the service provider market. SureWest has remained relatively debt free since its inception as a small telephone company back in 1914, says Dave Kamp, a company spokesperson. The company has practiced what it calls managed growth. It recently spent $12 million to acquire WINfirst, a fiber-to-the-home provider, which had spent $400 million building out its infrastructure.

“We’ve bucked the negative trends of the telecom industry,” says Kamp. “We started out as a small telephone company and we’ve layered on new services and offerings through the years. But the key has been that we haven’t gotten too big for our britches.”

Like other independents, the carrier also receives federal subsidies for serving rural areas. Typically, larger RBOCs don’t compete with independents because the areas they serve are so sparsely populated that it’s economically unfeasible for RBOCs to do business there. The same is true for emerging CLECs, which often go to areas where the population density is greater. Even so, SureWest competes with bigger carriers like AT&T Corp. (NYSE: T) and Pacific Bell, a subsidiary of SBC. Now that the provider is also offering a bundled digital cable, high-speed data, and phone service package, it also competes against Comcast Corp. (Nasdaq: CMCSA, CMCSK).

But there seems to be plenty of business to go around in the Sacramento area. The region is one of the fastest growing metropolitan areas in the country, according to the 2000 U.S. Census.

“The IOCs have always been a market you couldn’t ignore,” says Kevin J. Sheehan, vice president of marketing for Hatteras Networks, an Ethernet-over-copper access startup. “They’re very competitive with the cable operators, because they also offer the triple play: voice, video, and data.”

— Marguerite Reardon, Senior Editor, Light Reading
www.lightreading.com Movers and shakers from more than 100 companies – including Riverstone Networks – will be speaking at Lightspeed Europe. Check it out at Lightspeed Europe 02.

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lilgatsby 12/4/2012 | 9:23:25 PM
re: Riverstone Heads to Sacto I guess the boys at CSCO were too worried about the '454 business to mind losing a deal in their core competency. Does this mean the Cisco Powered Network sign has to come down...Classic!

Nice to see companies realize it isn't necessary to buy the big C in order to route.

firstmiler 12/4/2012 | 9:23:24 PM
re: Riverstone Heads to Sacto Kevin Sheehan? Who is this tool and what are his credentials for inclusion and commentary on a MAN project article?

Here is a portion from a recent article from RTP based News Observer:

"Hatteras, founded just months before the telecom industry downturn began, found itself in deep trouble as the original market it focused on, startup phone and data-service providers, began to suffer from bankruptcies and retrenchment in 2001.

The company's fortunes are due to a radical decision management made last year, said Kevin Sheehan, the vice president of marketing for the company.

Hatteras abandoned a technology called asynchronous transfer mode, or ATM, for ethernet, a technology the company saw phone companies adopting to improve their communications networks. In doing so, Hatteras had to lay off about 30 employees and rebuild its product development efforts. "

More blather from this fringe player without a clue. Does Hatteras have any shipping products?? Customers?? Or do they simply keep reporting staff reductions and corporate directional changes??
deer_in_the_light 12/4/2012 | 9:23:23 PM
re: Riverstone Heads to Sacto Kevin was Director PLM at Packet Engines
routerjock 12/4/2012 | 9:23:22 PM
re: Riverstone Heads to Sacto Kevin Sheehan was also pretty tied up with Alcatel's DSL division - I think he headed up its marketing. I would guess that he knows last mile technology pretty darn well since:

1) While he ran DSL they gained marketshare
2) Every ILEC uses Alcatel's DSLAM equipment

So... maybe he was the right guy for the article. Or maybe buying ad space gets you a quote in the odd article... Or maybe we should all the content of a quote and see if it makes sense...

Regardless I think he is a pretty respectable guy!
BobbyMax 12/4/2012 | 9:23:14 PM
re: Riverstone Heads to Sacto During mid seventies there were over 2200 independents but quite a few of them have disappeared. Indepedents stretch their equipments upto 15-20 years because of the fixed and very small number of customers. Independents in Minnesoya, For example, still use step by step switching macines.

Redback transaction with this independent telco does not prove or disprove any thing.
AAL5 12/4/2012 | 9:23:13 PM
re: Riverstone Heads to Sacto
There's a village out there that is missing their 'idiot'. Bobby return home would you?

MVH 12/4/2012 | 9:23:09 PM
re: Riverstone Heads to Sacto Didn't Hatteras just raise $45 million this summer? I think the post the the N&O is pretty old. Here's something more recent.

Hatteras wins capital
$45 million is a big victory in a tough time for telecom

By DAN EGBERT, Staff Writer

RESEARCH TRIANGLE PARK - Communications equipment maker Hatteras Networks has landed $45 million in its latest round of venture-capital investment -- one of the biggest private investments in a Triangle technology company.

It's also a rare win among local telecommunications-related businesses, which have been hit hard by the downturn in telecom spending and continue to face a dismal industry outlook.

Hatteras, which shifted its technology focus last year and laid off about half its staff as telecom spending continued to decline, is back to its previous size of about 60 employees. But the new funding doesn't mean the company will be hiring many more people, Chief Executive Tom McPherson said.

The company will focus on moving from research and development to testing its products with potential customers, he said.

Grotech Capital Group, a Timonium, Md.-based venture-capital fund, led the third round of investment for Hatteras, which brings the total amount of capital the company has raised to $73 million.

"Any firm in this business has to decide if telecom and networking is a place to be investing right now," said Joe Zell, a partner with Grotech and a new member of Hatteras' board of directors. "There's a tremendous restructuring change going on now [among telecom companies], but it's pretty easy to identify who the winners are going to be ... and there's a subset of companies developing products for those carriers in pragmatic areas," such as Hatteras, that will succeed, he said.

But the company still faces an uncertain market. The new round of funding is intended to sustain Hatteras until it breaks even, which isn't expected until late 2004, McPherson said.

"Why $45 million? We can't predict whether it will be in six months or 18 months when the market will improve," Zell said.

Hatteras is developing a product, due to come on the market next year, using a data technology called ethernet it says will help phone companies such as Verizon and BellSouth deliver high-speed data services to new customers more cheaply than they've been able to do.

Those providers have struggled with the difficulty of delivering broadband to residential and business customers, even though they ultimately expect the service to drive most communications business in the future.

"Most people in the industry believe that ethernet will expand beyond use in corporate data networks and it will be used to deliver data and voice services at the highest level," said Bill Lesieur, an analyst with Technology Business Research, a technology research and consulting firm in Hampton, N.H. "But innovation has stopped and will be stopped until 2004 [which is when he expects communication spending will pick up again]. Equipment manufacturers see that happening and they're trying to figure out how they can convince service providers to invest in anything new."

Hatteras hopes to win over service providers with the promise that its technology will allow them to overcome the cost and difficulty of delivering broadband by allowing them to offer it over existing copper and fiber-optic phone lines.

That would eliminate the expense of doing so with new fiber-optic cable, an expense that is often cited as the biggest stumbling block for businesses getting a high-speed connection.

Stagecoach 12/4/2012 | 9:23:03 PM
re: Riverstone Heads to Sacto Uh, firstmiler, take it easy. It's Friday. These are just news articles and Kevin is just a guy marketing his company and its products. Filling a guy and his company full of bullets before you know what he's about does little to legitimate any further comments you make.
Richard Hatch 12/4/2012 | 9:23:00 PM
re: Riverstone Heads to Sacto One efficient way of targeting this disperse segment is to partner/align with network consulting firms that provide critical expertise in many aspects of their client IOCs' operations: architecture, new services, business plans and RFP creation/evaluation.

These firms can give their equipment partners the inside track and awareness at the IOCs with active projects, without the partners' having to expend too many sales & marketing resources.

This beats direct sales to 1300+ IOCs (though there are only ~100 with >20,000 lines), especially since everybody and their brother has figured out that this is the segment to target these days.

This approach can also work for the municipal/governement segment which also relies upon these firms' expertise.

etherhead 12/4/2012 | 9:22:54 PM
re: Riverstone Heads to Sacto Could you post a more illiterate or offbase message?
Yes there has been some consolidation, doh.
Yes unlike the CLECs (see any) who changed vendors every 4 weeks and killed their Ops guys, IOCs keep the equipment longer, often moving it to smaller areas as it gets older...do you think a subdivision/street with a dozen POTS lines total, in the middle of nowhere, perhaps needs its own Softswitch. (see CLEC note above.)

Assuming you are right (you credibility seems questionable) the fact that you found one IOC with a Step by Step (most likely in as an isolated remote) it hardly speaks for the rest of the 1200+.

Please stop wasting Internet bandwidth!
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