While analysts debate whether or not the telecom industry has hit bottom yet, more startups are throwing in the towel (see Lehman: Worst Over for LU and NT). This week, Tenor Networks Inc., a core MPLS switch maker, is among the latest to shut down.

“Some of the startups in the class of '99 and '00 are running out of time,” says Kevin Mitchell, an analyst with Infonetics Research Inc.

Recently, Light Reading has noticed a rash of companies closing their doors for good as they run out of cash. Last week, Headcount reported that AirFiber Inc., the free-space optics startup funded by Nortel Networks Corp. (NYSE/Toronto: NT), had shut down (see Headcount: Good News, Bad News). AraLight Inc., an optical components maker, has also closed up shop.

Tenor management issued this note on the shutdown:

Tenor had originally planned to build an IP/MPLS switch for service provider core networks. The product, conceptualized in 1998, was designed for large carriers that were moving toward Multiprotocol Label Switching (MPLS) cores. Back in 2001 the company was testing gear with Global Crossing Holdings Ltd., Qwest Communications International Inc. (NYSE: Q), and WorldCom Inc. (OTC: WCOEQ), according to a former employee. Nice trial roster, eh? As those carriers fell on financial hard times -- with two of them filing for bankruptcy -- Tenor’s prospects fizzled.

Despite this spate of bad luck, Tenor managed to generate a small amount of revenue. The company had supposedly had a small deal with AT&T Corp. (NYSE: T). It had also sold some of its ASIC technology to Mindspeed Technologies, for which it had been collecting royalties until Mindspeed discontinued its project.

Tenor's big problem was positioning. Core routers from companies like Cisco Systems Inc. (Nasdaq: CSCO) and Juniper Networks Inc. (Nasdaq: JNPR) had already begun incorporating more MPLS functionality onto their platforms, rendering the TN250 obsolete before it was even ready to be sold. Although many incumbent carriers, including the regional Bell operators (RBOCs), had already begun deploying Internet Protocol (IP) and MPLS in parts of their networks, these carriers were looking for equipment that could help them migrate existing Asynchronous Transfer Mode (ATM) services onto an MPLS backbone gradually.

Tenor tried to change with the times. It began developing a smaller edge router. And most recently it had begun working on a metro Ethernet product. Details of these products were never released, says Mitchell of Infonetics.

Since last year, the company has been involved with metro Ethernet standards organizations. Its engineers helped sponsor and develop standards in the Provider Provisioned VPN (PPVPN) working group of the Internet Engineering Task Force (IETF). This group is developing a standard for VPLS, an Ethernet-based multipoint MPLS VPN offering.

“I think that Tenor was a little ahead of its time,” says one former employee. “But in terms of the Ethernet product, I think it was a little behind the market.”

The company had 152 employees at its peak. On its final day, the company had 63. Since 1998, the company had raised $120 million from venture backers like North Bridge Venture Partners, Matrix Partners, and Greylock. Although the company wouldn’t give an official figure, a spokesperson says the company still has cash in the bank.

According to former employees, they were all given severance packages.

“People are definitely sad it's over,” says a former worker. “But I think everyone knew it was coming. Dave Tolwinski [president and CEO] handled everything with the utmost respect.”

— Marguerite Reardon, Senior Editor, Light Reading