Storm Goes Native

Startup metro equipment manufacturer Native Networks Ltd. yesterday announced successful completion of the first phase of trials with its first customer, Storm Telecommunications Ltd. (see Native Trials With Storm).

Storm appears to be more than happy with the trials so far. “It’s not so far, so good; it’s so far, very good,” says Andy Wood, the European service provider’s CTO. If the second phase of trials goes as planned, he expects to launch a pilot network carrying live traffic some time in January – and that could lead to Native winning its first substantial contract.

More importantly, perhaps, it could help Native to raise some more money. The Israeli startup plans to start looking for further funds in the first or second quarter of next year, according to its CEO, Steve Harbour. There’s no panic, he says. Existing funds – $18.2 million of equity finance raised in August 2000 plus $4 million of debt – will last “well into 2002.”

As its name implies, Native is making equipment that enables service providers to offer circuit- and packet-based services in their native formats, using their existing Sonet/SDH infrastructures. It partitions bandwidth on access lines so that some of it can carry TDM (time-division multiplex) traffic such as leased lines and voice circuits, while the rest of it acts like a big pipe for carrying Ethernet and other types of data. The traffic in the big pipe is prioritized so that different grades of service can be offered.

Right now, most other solutions either run packets over TDM channels, which makes inefficient use of bandwidth, or they emulate circuits over packet networks, which runs quality of service risks. Each solution also typically requires two boxes rather than Native’s one – which equates to additional expense and management headaches, according to Storm's Wood.

The argument against this approach is that most incumbent carriers – the ones still spending money – generate nearly all of their revenues from TDM traffic, partly because a lot of existing data services are supplied over TDM channels. As a result, the argument goes, it makes more economic sense for them to focus on bringing down the cost of their TDM infrastructure with next-generation Sonet/SDH equipment, even if it results in them handling a small proportion of their traffic in a less than perfect way.

Storm wants to use Native’s box to reach more potential customers in the cities where it already offers service, according to Wood. “It’s about hitting additional buildings,” he says. Storm already offers high-bandwidth circuits using switches from Sycamore Networks Inc. (Nasdaq: SCMR). It also offers Ethernet services with switches from Riverstone Networks Inc. (Nasdaq: RSTN). Native’s equipment would enable it to reach smaller sites more economically, and to offer lower bandwidth connections, says Wood.

In the first phase of trials, Storm has tested Native boxes offering Ethernet connections only, deployed in London and Paris. Wood says they proved to be very easy to install. “They should enable Storm to have a plug-and-play network." They worked first time and continued to work without problems during the two-week trial, as did Native’s network management software, he says, adding that this was a pleasant surprise. “We always expect the boxes to come in broken,” he says, adding that his engineers are even more cynical about network management software.

In the next phase of trials, Storm will test Native boxes that support TDM circuits and Ethernet connections, Wood adds. After this, the pilot network will be launched and will carry live traffic. The commercial terms of the contract haven't been finalized, but they will be before the pilot starts in January, says Wood. "We're at a stage where we're reasonably comfortable with Native," he adds, noting that he still needs to run checks on Native's financial stability.

Wood says that Storm looked at equipment from Coriolis Networks Inc., which has technology similar to Native's (see Coriolis Gets $32 Million ), but decided not to test it. Why? The main reason is that Native has gone out of its way to line up support for its product, so that Storm wasn’t faced with having to ask its own integrators to go on training schemes to learn about Native’s equipment, according to Wood.

Most vendors don’t go to this trouble, says Wood, and that "makes things a bit more tortuous. It adds risks, and it adds time to market."

Native is local to Storm, having its HQ in the UK. It's also lined up one of Storm’s regular integrators, Telindus Group NV (Euronext: Tel.BR), to install and maintain its boxes throughout Europe. It’s setting up a similar deal with another big integrator, Dimension Data.

In the U.S., Native has forged reseller agreements with a couple of vendors of metro DWDM equipment, LuxN Inc. and Sorrento Networks Corp. (Nasdaq: FIBR) with a similar goal in mind. Other reseller agreements are in the pipeline, according to Harbour.

Storm and Native share a common investor, Soros Private Equity Partners LLC, a company owned by George Soros, the famous financier (see Storm Telecom Bucks the Trend ).

There's absolutely no hanky-panky going on, according to Wood. In the past, it has been known for venture capitalists to get one of their startup service providers to announce trials of equipment from one of their startup manufacturers in an effort to artificially boost each other's market standing. Kleiner Perkins Caufield & Byers tried this trick on at least one occasion with Broadband Office and Siara, the startup acquired by Redback Networks Inc. (Nasdaq: RBAK). Nothing like this is happening between Storm and Native, says Wood. It's a straightforward commercial deal.

Other investors in Native’s August 2000 round include Anschutz Investment Company (which founded and incubated Qwest) and Jerusalem Venture Partners. Seed venture capitalists included Israel Seed Partners, Apax Partners, and Skypoint Capital Corp.

— Peter Heywood, Founding Editor, Light Reading
http://www.lightreading.com Want to know more? This very topic is the subject of a session at Lightspeed Europe,Light Reading’s annual conference, on December 4-6, 2001, in London. Details: Metro Networks: Latest Developments

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