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WaveSmith Wins at SBC

Light Reading
News Analysis
Light Reading
3/27/2003
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WaveSmith Networks Inc. -- the No. 3 company on Light Reading's Top Ten Startup List (see WaveSmith Networks) -- has hit the milestone most startups covet: the multiyear, multimillion-dollar contract with a regional Bell operating company (RBOC).

SBC Communications Inc. (NYSE: SBC) has picked WaveSmith's DN 7100 multiservice switch for DSL aggregation for 200 of its switching sites nationwide (see SBC Deploys WaveSmith's DN). According to WaveSmith, at least one switch will be deployed per site, with the potential for more than one in some locations.

WaveSmith spokespeople say they're constrained from giving the exact value of the deal, and SBC hadn't returned calls for information at press time. Apparently, the rollout's already started, with switches live in portions of SBC's network.

The deal marks WaveSmith's first big win, though it's scored prior contracts with a couple of competitive local exchange carriers (CLECs). (See WaveSmith Wins Twice and WaveSmith Wins Customer.)

"We're pretty psyched," says CEO Thomas M. Burkardt. "It's taken a long time... [Our] people have worked hard for this."

The RBOC market is considered to hold the most potential for vendors dealing in access and edge equipment in North America. It's the Big Time for established suppliers -- and, for many startups, the key to survival.

The significance goes beyond revenues, though money always helps. The recognition of WaveSmith's technology by SBC is the real career-builder.

"This installation increases WaveSmith's chances of winning other deployments at SBC and with other RBOCs," says Kevin Mitchell, directing analyst at Infonetics Research Inc.

Mitchell also finds it significant that WaveSmith won this contract over incumbent players. Though details of which firms WaveSmith beat out aren't available, Alcatel SA (NYSE: ALA; Paris: CGEP:PA), Cisco Systems Inc. (Nasdaq: CSCO), Lucent Technologies Inc. (NYSE: LU), and Nortel Networks Corp. (NYSE/Toronto: NT) also play in this space, and most of them have supplied gear to SBC in the past.

At least one other observer agrees the impact of the deal can't be downplayed. "This is a very significant win not just for WaveSmith. This proves that startups can win, if they focus on solving RBOC problems and try to meet their requirements," says Mark Bieberich, senior analyst at Yankee Group.

What were some of the needs WaveSmith met? According Bieberich, the box's compact size and ability to pack DSL channels onto a large amount of multiple ATM virtual circuits per chassis helped distinguish the vendor from competitors. It's also likely WaveSmith's costly investment in obtaining Osmine certification from Telcordia Technologies Inc. -- a must for RBOC acceptance -- paid off (see WaveSmith Scores Osmine).

It's worth keeping a careful eye on WaveSmith's partnership with Ciena Corp. (Nasdaq: CIEN). (See WaveSmith Gets $30M, Signs With Ciena.) According to Mitchell, even if Ciena didn't play a role in getting WaveSmith into SBC, the vendor could help WaveSmith with service and support later on.

WaveSmith has certainly caught Ciena's attention. In an interview at this week's OFC Conference in Atlanta, Steve Chaddick, Ciena's senior VP for corporate strategy and marketing, said that Ciena had been impressed with WaveSmith's progress. "They will find success... We provide the financial backing. It's a good partnership."

Might the partnership lead to acquisition? Chaddick certainly didn't rule out more startup acquisitions by Ciena. "Valuations are nuts right now... It's a pretty good time to be looking around."

What's next on WaveSmith's plate? Burkardt says there are several trials underway with North American carriers, though he won't say whether any are RBOCs. The sheer pressure of it all could weigh on a small firm, which still has just 100 employees.

The startup's win throws into relief the fact that Équipe Communications Corp., Ciena's other startup investment, hasn't gotten its big break. Though they play in different markets (WaveSmith at the edge and Équipe in the core), their common ATM heritage and relationship to Ciena provoke questions of who will survive -- or ultimately be bought by Big Brother or another player.

— Mary Jander, Senior Editor, Light Reading

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puddnhead_wilson
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puddnhead_wilson,
User Rank: Light Beer
12/5/2012 | 12:21:36 AM
re: WaveSmith Wins at SBC
I am wondering what is the exact scenario in which the Ciena relationship would have "played a hand" in getting this contract. Just because Ciena is larger, and the implied stability that brings? I don't see any clear benefits of "contacts," since there is no current customer relationship with Ciena over at SBC that I know of ...
wass
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wass,
User Rank: Light Beer
12/5/2012 | 12:21:35 AM
re: WaveSmith Wins at SBC
SBC has an unwritten policy to only work with startups that have a "big brother" as a partner. It is likely that Ciena helped just by being there.

ILikeBirds
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ILikeBirds,
User Rank: Light Beer
12/5/2012 | 12:21:34 AM
re: WaveSmith Wins at SBC
I'd like to congratulate everyone over at wavesmith for this accomplishment. Way to go, and keep up the excellent work....
rbkoontz
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rbkoontz,
User Rank: Light Beer
12/5/2012 | 12:21:32 AM
re: WaveSmith Wins at SBC
This is actually a small deal in the big scheme of things. Lucent decided to pass on this rather than drop the price of their CBX 500 plugs by 50%plus. This way LU still makes money selling into their installed base of CBX.

The Wavesmith win is for DSLAM aggregation only - probably less than 100 units which will be sold at negative gross margins. However the RBOC win will certainly be huge help to Wavesmith in raising another funding round. It buys Wavesmith some runway to figure out how to actually build a profitble business.

Agreed with WASS - Ciena did nothing to drive this deal. It has been in the works for 18 months. Only SBC would not sign a PO to a startup without a financially viable company to take financial and support responsibility. Think of Ciena as Bank of America without the ATM.
Richard Hatch
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Richard Hatch,
User Rank: Light Beer
12/5/2012 | 12:21:29 AM
re: WaveSmith Wins at SBC
If this is the application I think it is (I heard about it over a year ago if not more), SBC was looking for a smallish box that fell in the $30-40k price range. I actually thought it would go to a Mainsail/Terayon type box based on those guidelines. Definitely too small & cheap for CBX-500, even at bargain-basement pricing.

I am surprised they got this, but good for them b/c there is hope for other startups now. I am waiting for the return of the days when a rumor about being in the Williams lab would bump your valuation $200+m or so (but not holding breath)!
MaxQoS
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MaxQoS,
User Rank: Light Beer
12/5/2012 | 12:21:29 AM
re: WaveSmith Wins at SBC
Most Wanted,

So another way to restate what you said would be to say that LU can't afford to undermine their legacy business in antique CBX 500's by lowering their gross margin to compete with someone with a next gen edge platform. Having failed to develop any sort of replacement for the CBX, they have to hope that the RBOC's keep buying what they've got while LU tries to figure out how to build a profitable business. Oh, and just for good measure, plant a little FUD that they're selling the Wavesmith boxes at a loss just to get the carrier win not the more likely scenario that the WS box is just cheaper to deploy than the behemoth CBX 500.

Newsflash: LU has been a stunning failure in the profitability department thus far, a lot of people at CTIA wondered how much runway LU has.

Disclaimer: I've never had any relationship with Wavesmith.

Max
optical_man
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optical_man,
User Rank: Light Beer
12/5/2012 | 12:21:29 AM
re: WaveSmith Wins at SBC
Author: Most Wanted Number: 4
Subject: Small Deal? Date: 3/27/2003 8:46:52 PM
This is actually a small deal in the big scheme of things. Lucent decided to pass on this rather than drop the price of their CBX 500 plugs by 50%plus. This way LU still makes money selling into their installed base of CBX.

You Sir are a loser on many levels, philosophically, logically, intellectually. (did I spell all those correctly?).
Pull your head out of your axx and celebrate a breakthrough for a nobody who now has a chance to be a bit player in the recovery! These guys may make sub 1 billion/year eventually, which is a joke for legacy players, but more money than I made last year (or even the year before that I think :-))
Not sure if your pooh-poohing of this is because you are under a still hidden rock at Lucent, or you lost this deal at a competitor, or you just hate everything in general, but you are not the type of person who's going to drag us out of the mud to respectable spending, deployment levels where we can make an honest living delivering value.
Geez, a small company announces a national deployment at SBC (in 2003 for gosh sakes!) and you bitch about it?
Go away, or I shall taunt you a Second Time....

BobbyMax
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BobbyMax,
User Rank: Light Beer
12/5/2012 | 12:21:28 AM
re: WaveSmith Wins at SBC
Switch for DSL aggregation is a simple device that is likely to be duplicated by hundreds of vendors. So the prices may come down further to the point that the business for for the DSL would go down the tubes. There is nothing to excited about WaveSmith getting some business from DSL.

What is surprising is that SBC is taking such a risk. The future of SBC itself is very dim as it is losing the number of access lines and its customer service is located in India without the knowledge of its customers.

Although the wings of SBC has been clipped its CEO made an obscene amount of money -- ten million dollars. He was entitled to receove this money but the SBC board gave $10 Millions of shareholders money.
allidia
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allidia,
User Rank: Light Beer
12/5/2012 | 12:21:24 AM
re: WaveSmith Wins at SBC
according to a blurb in yesterday's Boston Globe. Assuming 200 sites then $50k per system is about right. Question is what percent does Ciena get? I would guess 30% and that they would provide the support. Not sure how big Wavesmith Customer service is but 200 sites leads me to believe Ciena may have more of a role in this than thought. Either way this is a positive development but also a very rare one.
alcabash
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alcabash,
User Rank: Light Beer
12/5/2012 | 12:21:17 AM
re: WaveSmith Wins at SBC
Alcatel owns the DSL layer at SBC and was not able to sell its ATM switches 7470 and 7670. Cisco owned the ATM and IP at SBC and lost that battle too.
That is a big upset for both incumbents.
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