High-profile startup Infinera Inc. has scored its first big name customer: Level 3 Communications Inc. (Nasdaq: LVLT).

The companies announced the contract this morning, with Level 3 claiming Infinera's DTN systems will be used in a "substantial portion" of its fiber optic network. The deal is still in the field trials stage, but Level 3 says it intends to fit Infinera into most of its intercity routes by the end of the year (see Infinera Wins Level 3 Deal).

The win is further validation of Infinera's concept, which involves using optical-to-electrical transitions to handle DWDM traffic, as opposed to the all-optical methods championed by others. Infinera's architecture, driven by a massively integrated indium phosphide (InP) chip, allows the DTN to analyze traffic as it goes by and also puts some flexibility into the DWDM operation (see Infinera Declares WDM War).

Level 3 is finding its IP network needs a booster shot, and Infinera is being included in the upgrade. "They're seeing very strong demand for IP and transport services," says Rick Dodd, Infinera's director of marketing.

Even though the specific size and value of the contract aren't being revealed, the Level 3 deal is a milestone for Infinera, whose biggest announced win to date has been with Freenet.de AG (see Freenet Deploys Infinera).

"This is bad news for the incumbents," says Stan Hubbard, analyst with Heavy Reading, Light Reading's paid research arm. "Infinera was having an impact on the market even when they didn't have a flagship customer. This is a fantastic opportunity for them to prove themselves."

Infinera still faces big questions, however. The company raised $205 million, including a $52 million round late last year, and its costs include more than 250 employees and a manufacturing facility (see Infinera Raises $52M More). The company still has a "huge battle" to get that money recouped, particularly at a time when most network operators aren't looking for large-scale DWDM buildouts, Hubbard says.

"One of the things their competition would say is that they're going to have to capture all the 10-Gbit/s business in the world," Hubbard says. "But if you talk to Infinera, they say they can ride the cost curve down better than their competitors can."

Because so many carriers are upgrading individual routes, Infinera might have to offer a lower price just to attract that business, Hubbard adds. Once ensconced, Infinera would then get the chance to show its product can save money in the long term. "Their operational strengths would come into play," Hubbard says.

— Craig Matsumoto, Senior Editor, Light Reading