Optical startups crowd into a booming metro-telecommunications market

The emergence of new startup companies in the fiber-optic industry this past year has been phenomenal. But even more recently, the metropolitan area seems to have become somewhat of a "startup magnet," attracting new vendors with unique ideas and products, intending to cash in on data demand in the cities.

The attraction of the metropolitan market for new companies can be attributed to a lot of factors. A strong, crowded, long-haul market, dominated by some very large companies such as Lucent Technologies (Murray Hill, NJ), Nortel Networks (Brampton, ON), CIENA Corp. (Linthicum, MD), and several others, would likely make any other market look good. The growth of technologies entering into and designed specifically for the metro market is healthy. According to Pioneer Consulting LLC, an industry-analyst firm in Cambridge, MA, the metro market for dense wavelength-division multiplexing (DWDM) is expected to grow from $95 million in 1999 to nearly $1 billion in 2003.

The uniqueness of the metro market also lends itself to brand new technologies and innovative ideas. Some long-haul product vendors are more inclined to attack the metro market by trying to capitalize on their past achievements, taking an approach of downsizing existing long-haul products for adaptation to the metro market. But different economic and technological requirements present a whole new set of problems and, at the same time, a whole new opportunity for new solutions.

In a recent report on metro DWDM, Communications Industry Researchers Inc. (CIR--Charlottesville, VA) addressed these differences. In the report, entitled Common Sense About Metro DWDM, Lawrence Gasman, president of CIR, says, "An argument can be made that the technical requirements for a metro DWDM box are significantly different from those of a long-haul DWDM box. This means established DWDM suppliers who have previously made their living by selling into the long-distance market may not have significant competitive advantages over new entrants."

A closer look at some of these "new kids on the block" reveals how they intend to position themselves in what is becoming a very crowded metro market. Obviously, to play ball with the "big boys" these startups need to convince business customers they have what it takes to guarantee success. That means products offering features uniquely designed to address the needs of the metro market.

"Most metro areas already have ample fiber, or will have in the next two years," says Scott Clavenna, principal analyst for Pioneer. "That said, carriers will be looking for products that add flexibility over existing SONET [Synchronous Optical Network] and ATM [Asynchronous Transfer Mode]-based systems. They'll want to reduce overall operations costs by consolidating multiple function into a single platform. Finally, the products will have to allow carriers to provision bandwidth services in a much more efficient and speedy manner."

Qeyton Systems (Hagerston, Sweden) is not only a newcomer to the industry, but is moving into the U.S. market from its headquarters in Sweden. The company expects to open a U.S. office from which to market its QS200 product line designed for metro-access rings. Rob Batchellor, the company's vice president of technical marketing believes the metro market will see very strong growth in the future once the "economic brakes that have so far impeded this market have been released."

"Metro vendors taking a 'clean sheet of paper' approach have produced products that are smaller, consume less power, and are cost-optimized for the task at hand," says Batchellor. "The metro area is, therefore, very fertile ground for those visionaries who see its potential and have market-ready products."

Qeyton's products were announced last August and are currently completing beta trials in both Europe and the United States. The company plans to have products ready for initial deployment before the end of this year. Qeyton is focusing on a pure DWDM product deployable with existing SONET and the new generation of electrical-multiplexing equipment. Although a relatively new entrant itself, Qeyton offers advice to any other company intent on entering the metro space any time soon.

"It may be a little late to address this market with a brand-new company right now," says Batchellor. "Already, the vendor space is getting crowded and if the product isn't ready to ship in the next few months, market shares are likely to already be established."

But there are lots of companies that, in the next few months, will be ready to sell their wares. Cyras Systems (Fremont, CA), an emerging provider of "multiservices-over-optics" SONET switches for the metro area, intends to bring its M-BOSS switches to market by first quarter 2000. Founded in 1998, Cyras isn't about to be muscled out of the metro arena by the fierce competition, new or old.

"Traditional vendors in this space come from the 'long-long' paradigm," says Steve Pearse, CEO at Cyras. "They want to develop a product and have long market windows, for example, 10 years to develop a voice switch and 25 years to sell it. The optical space can move faster than Moore's laws, more than doubling in performance ever 19 months. A startup like us can push the performance curve at Internet speed better than the traditional vendors--and we're not just feasible in greenfield new services as many new startups are."

Pearse says it's important for new products to blend the latest in optical advances while still supporting traditional services, operation support structure, and network engineering. In this sense, he believes the metro-market opportunities are very large.

At Alidian Networks Inc. (Mountain View, CA), the metro area is an attractive place to target service providers who are caught in the middle of a "metro gap." These providers are unable to tap into the vast amounts of long-haul bandwidth to create, distribute, and provision efficient, usable, revenue-generating services. To bridge the gap for carriers, Alidian is offering solutions focused on the optimization of data transport over metro networks and low-cost access rings. The company's optical-service network solution boasts protocol independence and native-mode support to allow a variety of services from one platform.

"Traditional sonet adms [add/drop multiplexers] were geared for carrying voice traffic, and the metro market is moving toward carrying high-speed data services," says Ted Rado, director of marketing at Alidian. "Metro DWDM solutions use an expensive technology designed for the homogenous, point-to-point traffic flows in the long-haul network--yet the metro network is a dynamic, heterogeneous, cost-sensitive environment with meshed traffic patterns. In short, while there is significant competition in this market, most vendors address the metro gap ineffectively, providing an opening for new companies such as Alidian."

But with all the new and unique solutions to tapping the metro market, how will carriers determine who is actually holding the key to a successful network? Another startup company believes they may have the answer. Kestel Solutions (Mountain View, CA) says the various needs of so many carriers make the metro area a very large and attractive market for new companies. Dawn Hogh, Kestrel's vice president of marketing, believes that applications of technology will vary greatly, creating a situation in which service providers will want to have numerous "tools" in their tool kit. She thinks Kestrel's frequency division multiplexing technology will be one of those tools.

"Kestrel was formed specifically to focus on metro service providers' needs," says Hogh. "From the beginning, we've engaged customers in defining their needs and reviewing our development plans to ensure those needs were met. The metro market is vastly different from the long-distance market, and 'one-size-fits-all' will not meet the customer needs." Kestrel plans to offer TalonMX, its first FDM product, in the first quarter of 2000.

Having products available as we enter 2000 is the goal for these and other startups in order to reap a market share. But what if the customer isn't ready? Mathew Steinberg, director of RHK Inc., a South San Francisco-based industry-analysis firm, says both the vendors and carriers may be guilty of placing the "cart before the horse."

First, to claim possession of an innovative product or technology is not the same as actually bringing it to market for customers to deploy. Of course, there's nothing new about this--all the "big guys" have been touting new products before they were ready to be delivered for years. On the other hand, the are carriers out there that still have plenty of work to do in building out their networks to a point where actually deploying some of these new technologies and products is feasible.

"Not all service providers have their own infrastructures completely built out," says Steinberg. "One key advantage of technologies is to provision networks end-to-end. The service provider needs its own infrastructure, ATM for instance, built out now. If they don't, they're not in a position to take full advantage of these access-ring technologies, such as provisioning. It works both ways. Vendors may not have actual product ready, but service providers may not have built out to actually use the product today."

Then what's the rush? Competition. What's causing the rush? Data. Who will survive in the metro market and who will simply disappear? That's anybody's guess. Pioneer's Clavenna says all metro optical-network-equipment vendors will face intense competition in the coming years. It will be exacerbated by the cautious approach taken by incumbent local-exchange carriers (ILECs), leaving the startups to fight mainly for business from competitive local-exchange carriers (CLECs). Though many new CLECs are moving into the marketplace, they are not of the size and scope to make the same kind of volume purchases as the ILECs. Of the startups that disappear, some will fail to make a go of it and others will succeed to the point of drawing the interest of another company.

"Acquisitions will be likely as larger vendors try to add new technologies to their products or target market niches," says Clavenna. "The key to the metro area is its heterogeneity and the intense level of competition. Those factors combine to create many more market niches than exist in the long-haul market, where the emphasis remains on transport, not service delivery. With all the market niches emerging in the metro area, there is ample room for many competitors and widespread innovation."

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