Corvis tests waters in turbulent undersea fiber-cable systems market

TRENDS

By ROBERT PEASE

With the undersea fiber-cable waters being tossed into turmoil with the financial woes of some major players and claims of overstating-and overbuilding-global capacity requirements, Corvis Corp.'s (Columbia, MD) entry into the market seems a bit out of sync at first glance. However, the company believes its $90-million agreement to acquire Dorsal Networks, a privately held provider of transoceanic and regional undersea optical-network solutions, enables it to capitalize on new undersea-network opportunities.

Corvis will acquire Dorsal in a stock transaction for about 40 million shares of Corvis common stock, excluding the approximate 3% stake in Dorsal that Corvis acquired in a previous agreement. Corvis sees the Dorsal undersea-network offerings as complementary to its own terrestrial DWDM transmission equipment, switching products, and unrepeatered festoon systems, positioning itself to meet carrier needs for a single platform for global backbone networks.

The timing of the announcement came just one day after undersea-network giant Global Crossing filed for Chapter 11 in the United States Bankruptcy Court for the Southern District of New York on Jan. 28. On Feb. 12, Carrier1, the pan-European group, followed suit by announcing the company's assets would be liquidated, probably without any recovery for its shareholders.

TyCom Ltd. (Morristown, NJ-formerly Tyco Submarine Systems Ltd.), building the TyCom Global Network (see Lightwave , November 2000, page 1), survived less then two years after its own initial public offering in June 2000. In October 2001, an agreement was announced to bring the company "back into the Tyco International Ltd. corporate structure as a wholly owned subsidiary."

A February report in the The Times (London) business section claimed as much as $500 billion may have been squandered by telecommunications operators on fiber networks, citing undersea cable operations as major contributors to the failing market. In the article, analysts painted a gloomy picture for global networking, stating that the money "invested by telecoms companies in infrastructure worldwide in the past four years might never be recovered by investors, amid evidence that installed fiber-cable systems are being sold for less than 10% of their value."

But despite the gloom and doom scenario of the day for global networking, Corvis intends to vie for a share of the market, which still belongs to the big boys, including Alcatel (Paris), Tyco, KDDI Corp. (Tokyo), NEC Corp. (Tokyo), Fujitsu Ltd. (Tokyo), and Pirelli (Milan, Italy). According to Dave Dunphy, an industry analyst with Current Analysis (Sterling, VA), Corvis isn't likely to make a huge splash with its entry into the submarine systems market, but the importance to the company's own transport market roadmap may be as substantial as it is riddled with hurdles.

"Corvis has decided to make a major move by acquiring its way into a new segment: undersea transport," says Dunphy. "This move enlarges Corvis's addressable market opportunities significantly, but also increases its costs, scope of its focus, and complexity of the business, while giving it another segment to wrestle with, as it considers how best to break into this market from scratch."

However, Dunphy concedes that the move differentiates Corvis by making it an "optical-switching vendor with an end-to-end global optical solution that spans both land and sea." The addition of undersea transport approximately doubles the potential revenue opportunities for Corvis-a more appealing target than that offered by the crowded metro optical markets in the short term.

Corvis views the optical submarine systems market as very large-an addressable market exceeding $6 billion annually-with very few players. By acquiring Dorsal, founded in August 2000, Corvis intends to lure potential customers with a one-stop shop for turnkey integrated global solutions. The company is currently working with a number of customers in lab activities, system and architecture verifications, and requests for purchase.

The company still faces an uphill battle in a global undersea-networking market that has all but come to a halt in terms of build-out, as system operators try to forecast demand and spur new interest in transoceanic routes. There are still lots of big competitors who, once the market stabilizes, will fight ruthlessly to maintain market share.

"Corvis has a cavalier 'this fruit is ripe for the plucking' attitude about entering the undersea transport market-sticking its toe into waters that are home to some big piranha, with relatively little apparent concern," says Dunphy. "Expect these waters to be well defended."

Corvis is poised as a stone-throwing David preparing to battle sword-wielding Goliaths. The smart money may be on the incumbents, but in the tumultuous market of undersea fiber transport, an underdog could emerge, and to the victor go the spoils.