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Optical/IP

WaveSmith Wins at SBC

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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DoTheMath 12/5/2012 | 12:21:03 AM
re: WaveSmith Wins at SBC This is off-topic, but given the posting on SBC survival, I felt it is appropriate. I am not an RBOC fan, in fact have felt these dinosaurs should die, so I should give them credit for my recent positive experience.

I recently got SBC Yahoo DSL here in silicon valley. My wife ordered it when I was out of town - I was thinking of cable modem for a change. I used to have the more expensive SBC DSL (I was one of the early DSL customers) in my previous home. That cost $50 for a static IP connection. This new one costs $35 for a PPPoE dynamic IP connection.

My experience is that in terms of setting it up, pricing and the access speed, the new SBC Yahoo DSL is way better than my previous SBC DSL. I still use my Linksys Wi-Fi box to share this cheap DSL connection with 2 other computers at home, and the speed we get is upwards of 1 Mbps (closer to 1.5 Mbps), while in the previous more expensive DSL connection, I used to get about 500-700 kbps. Granted, location may have something to do with it, but the set up process the first time around took 2-3 technician visits, and this time, they just mailed me the modem and it was a snap to set up.

If this is the "new SBC", I am impressed. May be Yahoo has taught this old dog some new tricks. Granted, Yahoo may not be providing much more than name and "bundle" their site with SBC, but I like to think Yahoo would care to preserve its friendly brand image. The $35/month pricing is also much more reasonable than the $50/month they used to charge me.

Icing on the cake, I called their support once, and it was answered in under 1 minute and the support person was very friendly too. I don't know what has changed at SBC, but whatever it is, I like it. The $35 DSL can be very profitable to them. AOL has been minting money on $22 dial-up, and today's DSL equipment costs are not much more than dial-up gear.
Richard Hatch 12/5/2012 | 12:21:03 AM
re: WaveSmith Wins at SBC Again, with the required price points & footprint, it's not surprising that the big boys with their big boxes lost out.

Does anyone remember the big Cisco-SBC comarketing announcement of a few years ago? I remember thinking what a farce it was at the time and I wonder if SBC ever realized the hundreds of millions of dollars Cisco promised as part of the deal.

Neither Cisco nor Alcatel has innovated on the edge in some time!
rjmcmahon 12/5/2012 | 12:20:56 AM
re: WaveSmith Wins at SBC If this is the "new SBC", I am impressed.

DoTheMath; Think of it like living without food and water for many days and then suddenly a humanitarian army shows up and throws us some rations. When starved and oppressed, these efforts seems like a lot and can easily be confused as "impressive" instead of what they really are.

We deserve much, much more than these rations. We deserve a democratic, civilized society which not only respects our Bill of Rights, but also creates an environment where the citizens can grow. A prerequisite to that civilized society is an open access, bandwidth abundant communications infrastructure. Unfortunately, SBC/Yahoo is unable to help with that. Maybe the US AID organization can issue an RFP and that will get the job started.
cc_junk 12/5/2012 | 12:20:49 AM
re: WaveSmith Wins at SBC DoTheMath, post #12:
"The $35 DSL can be very profitable to them. AOL has been minting money on $22 dial-up, and today's DSL equipment costs are not much more than dial-up gear. "

Hmm, what is your bais for saying AOL minting money on $22 dialup? The only financial news for the last couple years out of AOL-Time Warner is complete disaster for the AOL division once the advertisement revenue started drying up. There wouldn't be talk of spinning off the division if were truly "minting money" instead of being a financial drain.

Is any major provider making money on consumer (or business for that matter) Internet access service?
rtfm 12/5/2012 | 12:20:47 AM
re: WaveSmith Wins at SBC Re: cost of DSL and the like.

One major cost difference between DSL and dial-up (e.g., AOL implications) is the uplinking (transit/carrier) fees. Bandwidth is some 50-80$/month per megabit for uplinking (someone correct me, please). DSL and cable are already stat muxed, (like dial-up is), but the utilization rate is often higher in peak periods, because of the always on nature and subsequent use of P2P. Opex are more than Capex for DSL and most other technologies.

The other major issue in econnomics is market share (more an issue for shared access technologies like cable modem, wireless, etc.). Still is an issue in DSL, though.

$35 can be profitable (i have lots of analyses/PhD theses to refer to), but under a lot of assumptions. Churn is also increasing, and competition makes it harder. But, I agree, $50 is probably too high for massive deployment. In addition, DSL can't easily do the "triple play."

rtfm
DoTheMath 12/5/2012 | 12:20:44 AM
re: WaveSmith Wins at SBC cc_junk> Hmm, what is your bais for saying AOL minting money on $22 dialup?

------------------------------------------------
Check out AOL cash flow numbers - they are pretty huge. The cash flow margins seem to be in the neighborhood of 40%. The reason why there is talk of AOL spin off is that Time Warner does not see any future beyond dial-up for AOL. In fact, having AOL around is complicating both AOL's and TW's effort at broadband. AOL cannot easily sign up other cable/DSL providers because TW Cable is competition to them, and TW feels hamstrung by a declining AOL (see recent moves to restrict Fortune magazine content to AOL subscribers only).

So the spin-off talk is not because AOL dial-up is unprofitable, but because in the current set up, there is no growth left in that division. Also, the TW folks are pissed off at AOL (and themselves) for the massively overvalued AOL stock they accepted in 2000, so they want revenge. Add to that the former AOL had given a put option to Bertelsmann about AOL Europe that cost the post-merger AOL-TW $8 billion IN CASH to settle. That $8 billion wiped out a couple of years of cash flow from AOL.

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