Carriers: Show Me the (Optical) Startups

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fiber_r_us 12/5/2012 | 3:40:10 AM

re: Carriers: Show Me the (Optical) Startups Photonic Phrenzy summarized the situation nicely. I see no reason why the pattern would be different this time (if there is a "this time").

Scott: Infinera isn't a success yet... the just have burned (and continue to burn) a lot of cash while dumping equipment on the cheap. Their investors certainly have deep pockets. It "ain't over 'till its over"... so, until they are bought (for some resonable return), or go public with some profits, it would be hard to call them a success. Could simply be another "White Rock": lasted longer than most, with some customers, then died.

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photonic phrenzy 12/5/2012 | 3:40:10 AM

re: Carriers: Show Me the (Optical) Startups In my opinion, many large carriers (especially the RBOCs & IXCs in North America) just use start-ups as leverage to get the large incumbents to develop what they want.

Live the optical equipment startup experience:
1. Carriers will ask you to come present the cool new ideas, participate in studies, showcases, and help them write the business case. You will do this for countless visits -- with no commitment.
2. Carriers will ask you to provide millions of dollars of lab equipment for free for at least a year to "test" the new technology--with no commitment.
3. Carriers will ask you to respond to countless RFIs and RFPs with more than a 1000 questions (I'm not kidding) -- Requiring teams of people to work night and day for a couple of months -- for free, with no commitment. This will help them educate the incumbents.
4. They will tell the startup you need to support their OSS such as OSMINE -- paying millions of dollars upfront with NO commitment from the customer.
5. Carriers will tell the startup you need to find a large incumbent partner. You realize this will be bad for both you and the partner because you will have to split the margins. Many of the incumbent partners will visit you anyway to do "due diligence". In fact, they really are there to educate themselves on what great things you have so that they can copy them. In the end, they will stall the customer until they can deliver the technology themselves.
6. Meanwhile, they will ask you to continue to develop countless custom features and commit to roadmaps that will require 200 people to support -- with no purchase commitment.
7. They will force you to agree to oppressive terms and conditions in which you take all the risks and they take none -- again with no volume commitment.
8. They will beat you down on price to the point where you are losing money -- in reality to use this new price point as leverage for their incumbents to match.
9. Carriers will in the end choose the incumbent (when they are finally ready) because:
a) Procurement folks have a "special" relationship with the incumbents
b) They have so much existing equipment with the incumbent that they can't afford to not keep them healthy.
c) No one ever got fired for buying "IBM" (NT/ALA/LU/TLABs)

It takes more than $100M to develop and support an optical startup to sell into a large Carrier. Carriers are not willing to share any of the risk. I am convinced that having the best technology and an innovative solution is not enough to get "healthy" business from large NA carrier. The investment is so high, the risk is so high and the probability of success is so low -- you have much better odds at winning the lottery.

Over the last few years, I have seen countless startups live the dream of selling to an RBOC/IXC -- only to see personal investors wiped out, massive layoffs, bankruptcies and families destroyed. All the while, the Carriers are continually wined and dined and treated like kings.

I'm sorry, I've had enough.
Innovate for a large NA Telecom Carrier again . . . I'd rather be hit by a brick. Fool me once shame on you; fool me twice and I deserve to be committed . . .

Drew, you are right -- Thanks, but no thanks.

Phrenzy

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paolo.franzoi 12/5/2012 | 3:40:09 AM

re: Carriers: Show Me the (Optical) Startups "Almost no one left in the Outside Plant field, thanks to the crash"

Wow, I will let Tellabs (AFC and Reltec), Alcatel (Litespan and ASAM), Calix (Calix and OSI), Occam, Emerson (the Reltec cabinet business), Commscope (Avaya Cabinets and about 20 other things), Corning, Adtran, Zhone, Telstrat, Tollgrade, and ADC (Pairgain and Connectors) that they no longer exist. I would add all the protector, rectifier and other specialty vendors but the list would get stupid - and I left off lots of folks as it is.

seven

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marc_goofy 12/5/2012 | 3:40:09 AM

re: Carriers: Show Me the (Optical) Startups Hi There,

I agree with you, this " cat & mouse " game is quite depressing.
However, there is one missing argument in your explanation : is the product or the technology the startup is offering something which resolves THE big current actual problem at the telco/carrier/service provider, or is it * just * another option for doing the same things than existing solutions but a different way ?
I'm pretty convinced that, IF there is a problem waiting for solution, then they will help you develop it.

Look FTTH/PON networks for instance : a huge business for Test & Measurement vendors, an even larger business opportunity for contractors. Problem : Human resources. At the Telco side, at the system integrator, at the contractors side. Almost no one left in the Outside Plant field, thanks to the crash. So, who's going to test the thousands of fiber connections at the subscribers' sites ? That is THE problem Verizon and the likes are all facing today. They kept calling on T&M vendors, the EXFOs, the JDSUs, the Agilents, but no one picked up the phone...

Hence the opportunity for a startup to do real business with those guys, on a real cooperative manner.

HTH,
_Marc

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Maverick1 12/5/2012 | 3:40:09 AM

re: Carriers: Show Me the (Optical) Startups Too bad, another one bites dust. What is the current product status? Wondering if TLBS will help them out and continue the technology or is that JDS-Uniphase suit some merit?

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Stevery 12/5/2012 | 3:40:08 AM

re: Carriers: Show Me the (Optical) Startups I'm pretty convinced that, IF there is a problem waiting for solution, then they will help you develop it.

Care to explain why "they will help you develop it" and get wealthy off their knowledge/experience/market position?

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litereading 12/5/2012 | 3:40:08 AM

re: Carriers: Show Me the (Optical) Startups What Mike, and especially Tom, fail to realize, or fail to acknowledge, is that vendors fund R&D with today's sales. Customer's have beat down prices so low than vendors cannot make return on sales acceptable to investors. This causes vendors to cut cost, and R&D is just one area. But then, their customers have done the same to them...

Infinera, sure they are winning deals. So did White Rock, who has 100 customers on there resume'. I suggest we can declare Infinera a success when they begin publishing GAAP compliant financial results. Until then, they are like a long distance runner who starts fast out of the gate and grabs the lead, but can they hold on to finish? Don't know.

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marc_goofy 12/5/2012 | 3:40:08 AM

re: Carriers: Show Me the (Optical) Startups Hey There,

Sorry for the confusion : i'm not talking about the vendors, NEMs and/or integrators !!! I'm talking about the people in the field : I&M crews, outside/inside plant technicians, etc. Look at the guys deploying and splicing fibers in the streets : lots of young people, right from the interim agency...

Again, sorry for the misunderstanding !
_marc

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Pete Baldwin 12/5/2012 | 3:40:07 AM

re: Carriers: Show Me the (Optical) Startups Good point, about R&D, litereading.

Also, on Infinera -- note the immense amount of money they've raised. In the absense of carriers willing to try out startups, that's the kind of funding it takes to get an equipment startup going.

I don't think every Infinera round was an "up" round ... but that only underscores the point, because it suggests that the price to even *try* something new is $100M+. At that price, who can afford to come up with innovative ideas?

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

re: Carriers: Show Me the (Optical) Startups Brookseven:

Pairgain/Redback became successful during the bubble. The question at hand is: Can a startup (particularly an optical one) be successful in the current environment?

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