Carriers: Show Me the (Optical) Startups

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paolo.franzoi 12/5/2012 | 3:40:07 AM

re: Carriers: Show Me the (Optical) Startups
The list of companies that was listed were interesting, but left off some products and companies that went into the carrier business as startups and sold to the RBOCs.

In particular, Pairgain and Redback. These products solved actual problems and were unique solutions at the time.

Does anybody remember a Qwest RFP for Optical Gear that had 80+ respondents? Every one of those products may have worked and may have solved an actual problem, but none of them were unique. On top of that, many of them depended on straight forward implementations of merchant technologies.

Infinera - whether it lives on or not - is unique and they have created much of their own Intellectual Property. At least that is on the right path to potential success. What happens to them in the future will be based on the quality of their idea AND their ability to execute as a company.

The truth of the matter is that if you are a startup and you list Cisco as a competitor, you have probably failed. You are on your way to failure if analysts are talking about your space - it will attract incumbents. The Baseball rule fits here - "Hit it where they ain't."

seven

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materialgirl 12/5/2012 | 3:40:07 AM

re: Carriers: Show Me the (Optical) Startups Dear Phrenzy:
You don't get nothing for nothing. The Internet started as a lab experiment with no profit model. It grew out of control because it was so useful to the end points and to the economy as a whole.

However, the Internet is of NO use to telecom providers. It does not provide them with a profit model. Their business is to make bandwidth SCARCE and COMPLEX, not PLENTIFUL and SIMPLE. They are therefore intent only on killing the Internet off, inch by inch, with the help of the FCC. A writer once said: "What did you think she would do, knowing who she was?"

Until we all get honest with ourselves, and admit that our economic growth is dependent upon a product with no profit model, we will just continue to see startups die. That is just what happens when you turn off the tap.

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optodoofus 12/5/2012 | 3:40:06 AM

re: Carriers: Show Me the (Optical) Startups Phrenzy,

An excellent post. You have summarized AT&T's treatment of startups perfectly, though I am sure the other large carriers are no better.

I once had a great idea to become a consultant to help start-ups sell to AT&T. My plan was to charge them $50K to tell them to forget it. I figured that $50K is a small price to pay to save your company from ruin at the hands of the deathstar.

optodoofus

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Drew Lanza 12/5/2012 | 3:40:06 AM

re: Carriers: Show Me the (Optical) Startups Lots and lots of great points being made here. Mind if I jump in again?

1. Infinera. They really are unique and I'd be willing to take a bet they turn into a substantial company. [Note: I am not an investor].

Infinera is unique because they are vertically integrated. They have a fab, they make components and they use those components in systems they design and sell. I don't think you could get a vertical company like that funded today.

This vertically integrated approach at 10 Gig really might enable them to capture a unique foothold on the price-performance curve. In any case, it's unlikely that anyone will try to duplicate what they've done. So if they're right, they're going to 'own' it.

2. It's not hard to figure out what the pain points are for carriers and what products need to be built to help salve those pains. In my 20+ years in this industry, they always seem pretty willing to have an honest discussion on this topic.

The problem is that they can tell you the WHAT, but they can never tell you the WHEN. We have a saying here that "Being too early is indistinguishable from being wrong and being too late is worse than being wrong" when it comes to startup companies and their products.

Look, Verizon is sincere about getting fiber to people's premises. And they've chosen PON to do so. I was the Program Manager on the first commercial PON system they ever tested in their labs. The year? 1992.

I would bet anybody any sum of money that Verizon's customers will have fiber to their premises. Now ask me to bet WHEN 50% of their customers will have fiber to their homes. I wouldn't take that bet at 2010 or 2015 and I'm not sure I'd even take it at 2020.

3. The folks in the field who maintain the outside plant have been hurt by this huge downturn. In the end, the carriers we are talking about on this thread are those with physical assets in the dirt. You can't build a network any faster than you can lay fiber between cities or install racks of equipment or dig up Aunt Maude's petunias.

To some extent, you can view these kinds of networks as the place where Moore's Law collides with the physical world. PC's and storage don't require preparation by trucks and tractors before they can be consumed.

I've believed for a long time now that part of the reason why the carriers are so confused is that the technology around them continues to accelerate while dirt digging isn't really that much improved since the time of the Eqyptians.

On the other hand, he who hesitates is lost.

Drew

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paolo.franzoi 12/5/2012 | 3:40:05 AM

re: Carriers: Show Me the (Optical) Startups
fiber,

Pairgain went public and was bought before the bubble existed.

Redback did well because it was the only way that Telcos could mass terminate PPP sessions at a reasonable cost for PPP (by the way the founders came from PacBell and knew what the pain point was).

Their success had nothing to do with the bubble. Redback has futzed around with the success, got rid of its founders, went bankrupt, and is trying to climb out. Pairgain got arrogant and ignored Adtran when they came out.

seven

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Drew Lanza 12/5/2012 | 3:40:05 AM

re: Carriers: Show Me the (Optical) Startups ...right!

The big debate surrounding Network Neutrality right now is really just asking if the network is a utility or not.

It matters who pays to build it and who pays to operate it and who pays to use it.

I'm actually pretty confident letting the carriers build and operate it. They're not perfect, and they're pretty slow, but their networks do seem pretty stable once they're up and running.

I'm entirely dubious, however, about having them determine who pays for using it.

Because, if they get to control that, then you're right that they will naturally want to make it scarce and expensive.

Heck, when you've gone to all that trouble of hiring all those people and digging up all that dirt and then installing all that whiz bang gear, you really do want people to coo and say, "Whee! What a pretty network. May I please, please, please use it?"

Sigh. And thus was it ever so.

Drew

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litereading 12/5/2012 | 3:40:04 AM

re: Carriers: Show Me the (Optical) Startups Drew, show me Infinera's balance sheet, cash flow and P&L, then I (might) agree with they that they are unique...

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litereading 12/5/2012 | 3:40:04 AM

re: Carriers: Show Me the (Optical) Startups I understood VC's put ~$180M into Movaz, which sold for ~$80M. Is that correct?

How much have VC's put into White Rock?

Rumor is Harbour sold for less than their funding. Etc....

Tom/Mike, and why would VC's invest in a new start-ups. Maybe time to start paying existing vendors a fair price. Otherwise, by the law of supply and demand, your choice of vendors maybe (will probably be) slimmer...

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optiplayer 12/5/2012 | 3:40:04 AM

re: Carriers: Show Me the (Optical) Startups Drew,

But its not "the network" its a collection of networks whether they be access or core. As long as there is competition, it will be difficult to make access (for the end user or content provider) scarce and right now there is competition between the LECs and MSOs. Throw in municipal wireless networks and 3G or 4G wireless networks and competition will only expand.

I believe the censorship threat is close to nil.

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optiplayer 12/5/2012 | 3:40:03 AM

re: Carriers: Show Me the (Optical) Startups Great post phrenzy but not one of those items should have come as a surprise to anyone intent on pursuing the incumbent carriers.

In my mind, its the death of CLECs/alternate carriers and consolidation of the legacy carriers that makes it entirely undesirable to build products targeted for the carrier market now. In the 90s, at least a start-up could sell to the new guys to get the business going without OSMINE and multi-year evaluations/trials. Now, forget it. The outcome, after years of effort and tens of milllions in funding, is almost binary and that's far too risky.

One could attempt to build a product for the independent telcos which AFC, Cerent and Calix did well but even these carriers are consolidating and a company can only grow so large while pursuing this market. Further, transitioning from this market to the RBOCs is very difficult (if not impossible)... as AFC discovered.

Couple this with the lame exits the few survivors are getting (Movaz for example) and its no surprise VCs are looking elsewhere to invest these days.

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