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Sigma Relies on Star Power

Light Reading
News Analysis
Light Reading
1/23/2001

Sigma Networks is beefing up its board with star power, hoping some golden names might aid its cause in a hostile market for startup service providers.

Former FCC chairman Reed Hundt and former Netscape CTO Marc Andreessen have joined the startup's board of directors. The company will shortly be detailing its metropolitan services business plan.

"We're still kind of in stealth mode, but I guess we're not going to stay that way for long," says Sigma CEO John Peters, who spoke with Light Reading after giving a short presentation at the CIBC World Markets metro optical conference in San Francisco last week.

Sigma plans to rent space in carrier hotels, colocation centers, and other metro-area POPs (points of presence) and will offer a full range of services, including TDM (time-division multiplexing), gigabit Ethernet, and wavelength services, Peters says. The company will also offer Web-based provisioning and operational support, which Peters says "makes us a very attractive outsource" for potential customers.

The company plans to offer services in five metro areas -- Boston, Dallas, New York, San Francisco, and Washington -- by the middle of 2001.

It's a bold time to announce such plans. Services startups have encountered numerous difficulties. The largest hurdle for Sigma is financing, which startup service providers need in large quantities to fuel their expensive buildouts (see Vendor Financing). The financing climate has deteriorated following some high-profile bankruptcies (see ICG's Dark Cloud).

Peters himself acknowledges this fact, starting his presentation at the CIBC conference with a slide titled "Capital Markets Suck!"

So far, the company has raised $10 million in a seed round supplied last February by Benchmark Capital and $260 million in vendor financing from Cisco Systems Inc. (Nasdaq: CSCO). Peters says the company will shortly be closing on another round.

Sigma will rely on larger fiber networks, such as Metromedia Fiber Network (Nasdaq:MFNX) to supply capacity, rather than building its own network. A similar strategy contributed to the DSL-market disasters at NorthPoint Communications (Nasdaq: NPNT) (see DSL D-Day), among others.

Other elements adding to the eerie sense of deja vu: NorthPoint was also financed by Benchmark and Cisco and had Hundt on its board.

Peters says Sigma will steer itself clear of the problems encountered by NorthPoint.

"DSL [CLECs] had some flaws from day one," Peters says. "MFN may be a supplier, but it's not our only one. In the DSL business, resellers got into price wars, and there was a lot of pressure, sooner. There were land-grabs fueled by money... Capital was free then, and that's certainly not true anymore."

But Sigma faces significant competition from other metro-service suppliers that are already up and running, including Sphera Optical Networks Inc., Yipes Communications Inc., and Telseon, to name a few. Pricing pressure is already hitting the market, with startups like Cogent Communications Inc. pledging to provide 100-Mbit/s Ethernet connections directly into businesses for $1,000 a month.

Peters, who says he "doesn't get" Cogent's price plan, didn't offer specifics on Sigma's pricing model.

-- Paul Kapustka, editor at large, Light Reading http://www.lightreading.com

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lightreading
lightreading
12/4/2012 | 8:59:41 PM
re: Sigma Relies on Star Power
"DSL [CLECs] had some flaws from day one," Peters says. "MFN may be a supplier, but it's not our only one. In the DSL business, resellers got into price wars, and there was a lot of pressure, sooner. There were land-grabs fueled by money... Capital was free then, and that's certainly not true anymore."

well, actually MFN (or another facilities-based carrier) probably WILL be their only supplier on many of the popular, capacity-constrained routes.
they will be waiting for capacity just like the other 6 guys in line.

oh, and colo space? extremely tight. Level 3 is totally sold out in several top-tier cities. even then, if you find space, it needs to be connected to the dark fiber supplier you're using in that route/city. that alone can take months, if the two parties are talking and already have a business deal.

let's see, last I checked there was quite a bit of price pressure for bandwidth capacity too.

so: in a given route/city they're limited by probably a couple, at best, dark fiber providers. they're limited by again by a couple, at best, carrier-class colo providers that have space, AND are lit with and have capacity on the right carriers/routes. and they're also limited to using Cisco's sub-standard optical (DWDM) gear.

throw in Reed Hunt, Benchmark, Mark Andressen (?) and 15 competitors and this sounds EXACTLY like a high-bandwith DSL CLEC + 15 competitors.
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