Startup Renaissance in Cable Market
One such company is Optinel Systems, which announced this week that it has received a second funding round of $22.4 million from nine investors, including its original backers, Optical Capital Group and Novak Biddle Venture Partners (see Optinel Grabs $22.4M). The company has raised about $30 million to date.
About fourteen months ago, Optinel was focused on selling optical filters that were designed to boost the performance of DWDM systems in telecom networks. Using that same basic technology, the company is now selling a box that helps cable MSOs interconnect their head ends both with hubs and other head ends.
Using DWDM technology, Optinel's box can simultaneously transmit video, data, and voice traffic in their native formats (e.g., Ethernet, Sonet, etc.). It can transport up to 50,000 video streams over distances greater than 300 miles, the company says. "We offer better transport in native formats over longer distances than anyone," boasts Jim Faust, Optinel's CEO.
Faust, an old cable hand, joined Optinel's board at the beginning of this year and took over as CEO in September. Faust replaced Ronald R. Spoehel, who had been CEO since December 2000.
Optinel employs about 36 people and recently announced a successful trial with the notorious Adelphia Communications Corp. (Nasdaq: ADLAC) (see Optinel Passes Adelphia Trial).
Ellacoya Networks Inc. is another company that has found new life after realizing it was running out of road in the telecom market. Ellacoya has raised three rounds of funding -- a total of $111 million -- and now employs about 55 people, down from more than 200 it employed in its early days.
The company originally sold a family of switches that were supposed to give CLECs and Internet service providers a way to install broadband connections, process orders, and provide customer support without having to send out a technician.
Ellacoya cancelled that product in January and, in August, it began shipping a traffic cop for cable networks that uses the same packet processing and traffic analyzing technology. The new box monitors cable network traffic and lets operators know which groups are using what applications at what times.
The company says the new box -- which can support up to 16,000 customers on one device -- is in trials with several cable MSOs and has already started generating revenues . “Our message isn’t totally different from what it was before,” says Ellacoya CEO Ron Sege. “We’ve just focused our product strategy and targeted a different audience.”
While the cable market has a set of challenges all its own, vendors say it can be more appealing because it's absent the hurdles -- such as Telcordia Technologies Inc.'s Osmine certification -- that they would face trying to sell into RBOCs (see Telcordia's Osmine Goldmine). "The cable industry encourages startups, and MSOs will let you trial stuff," says Faust.
“We had to change with the times, and all I want to do is sell customers a product they are happy with and can use. We’re doing our best to be survivors," says Sege. “We’re like a weed you can’t kill."
— Phil Harvey and Marguerite Reardon, Senior Editors, Light Reading