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Optical/IP

VCs Pump $10M Into NexTone

NexTone Communications Inc. is the latest vendor to cash in on the growing interest in session controller capabilities, raising $10 million in its third round of funding (see NexTone Raises $10M).

The cash injection takes the vendor's total funding to $32.5 million, with the latest round coming from its five original backers, plus one new investor, BCE Capital.

The new round comes as the market for session border controllers, which interconnect multiple IP networks and manage IP sessions across those networks, is exploding, while evolving at the same time (see Session Controllers: Limited Lifespan?). The soothsayers at The Yankee Group, see the market growing from less than $100 million at present to $1.2 billion by 2008 (see Session Controller Market to Explode).

NexTone has taken full advantage of the growing interest in session controllers. Raj Sharma, founder and president of NexTone, says the firm's technology, which helps carriers manage IP traffic across multiple networks (see NexTone Debuts FlexControl), is now live in 150 service provider networks and managing more than 3 billion minutes of VOIP traffic each month.

For a session controller vendor, that's a hefty number of customers, especially as some of NexTone's rivals are just nudging into double figures in terms of customers. It has also given NexTone the level of experience that has led to some valuable partnerships (see NexTone Partners With BroadSoft ).

Sharma says the cash will largely be used for international expansion. He believes it can take the company to profitability by the middle of 2005. A Latin American office will be opened, probably in Mexico, says Sharma, while staff numbers will double to 10 at the London office. Similar expansion is planned for Tokyo and Singapore (see Nextone Expands in Asia/Pacific and NexTone Opens in Tokyo).

This expansion will also include the announcement of Tier 1 carrier customers, says Sharma. To date, NexTone's users have been smaller or specialty operators (see iBasis Deploys NexTone, NexTone Wins in Australia, and Telstar Deploys NexTone, for example), but "we're doing a lot of design work for Tier 1 carriers at the moment," and there will be large carrier customer announcements in the next 60 to 90 days, he claims.

With BCE Capital, the venture offshoot of BCE Inc. (NYSE/Toronto: BCE) -- better known as Bell Canada -- as its new backer, surely a deal with the Canadian national operator is a serious possibility? Sharma maintains there are high walls between the various parts of BCE, and would say only that Bell Canada is "not yet" a named customer.

But winning bigger accounts is more likely as NexTone evolves its technology. Graham Beniston, analyst at large at Heavy Reading, says the company has "a good story." Its approach differs from its main rivals, such as Acme Packet, Kagoor Networks, and Netrake Corp., in that it believes the "media firewall" element of session border controllers, which allow IP sessions to traverse firewalls, will be subsumed by edge routers from major vendors such as Cisco Systems Inc. (Nasdaq: CSCO) and Juniper Networks Inc. (Nasdaq: JNPR).

This approach, though, means NexTone is concentrating "on the control side, and it will start meeting competition from the major players with legacy voice and softswitch technology such as Alcatel, Nortel Networks, Siemens Information and Communications Networks, and Sonus Networks, instead of the other session controller vendors."

Could NexTone survive in such company? "Quite possibly," says the analyst, who reckons that would likely lead to an acquisition. "The majors move relatively slowly, and the poor definition of this space by the larger vendors and the IETF has led to session controller startups being formed in the first place."

NexTone is not the only session border controller vendor to attract a new investment in recent months. The space is drawing investor interest as carriers start deploying infrastructure to support VOIP and other multimedia IP services (see Session Controllers Storm Chicago, Border Controllers Booming, Ingate Gets $5.8 Million, and Netrake Rakes In $20M Funding ).

— Ray Le Maistre, International News Editor, Light Reading


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