NGN VENTURES: CORE OPTICAL PLATFORMS
The first killer application for photonic switching is to provide “DWDM junction automation,” according to Charles Corbalis, President and CEO of Calient Networks, speaking at this week’s NGN Ventures conference in Burlingame, California.  The technical challenge is how to establish wavelength circuits across an interconnected series of access, inter-office, regional and national rings.  At the boundaries of each ring, wavelengths currently must be run through a series of electrical ADMs.  With carriers now looking to deploy DWDM systems with 160 wavelengths or more, the boundaries between rings require very expensive, large and difficult to manage add/drop multiplex devices.  Calient’s solution is an all-optical MEMs-based switch, which Corbalis argues makes a strong business case already.  He also argues that it is absolutely critical to establish open standards for interconnecting these DWDM systems.  His company supports MPlS.  Corbalis also anticipates the arrival of All Optical Signal Conditioners (AOSC), which would provide signal equalization, wavelength conversion, optical regeneration, reshaping and timing.

Despite the harsh economic climate, service providers really have no other choice than to continue modernizing their networks, said Bijan Khosravi, Chairman and CEO of Movaz Networks.  However, the industry has been focused on technology for its own sake, instead of addressing the high capital cost of carrier networks, their operational complexity, and their need to generate revenues.  In terms of the optical transport network, Khosravi calculates the two largest cost factors are OC-48 SONET termination costs and the price of lighting DWDM wavelengths ($45 – 75K).  On top of this, current architectures of stacked SONET rings or passive DWDMs with co-stacked SONET ADMs face challenges in scalability and even in efficiently provisioning service.  For optical to hit the big time, Khosravi says we need low-cost aggregation and transport systems that can deliver wavelengths to the customer much like STS-1 (DS-3) is offered today.  Movaz is developing a distributed, all-optical cross-connect that provides wavelength management using MPlS.

The next wave of core optical platform will match quality of service (QoS) and quality of control features to a new generation of services, said Bill Joll, President and CEO of Maple Optical Systems.  Joll proposes that “lambda VPNs” and application aware wavelengths will be able to reverse the telecom industry’s slide into commodity services.  This requires that the IP control plane has an awareness of the optical core – essentially a two-layer intelligent network.  Maple’s enabling technology will be a photonic cross-connect system driven by MPlS.

As an investor in optical technology, James Wei, General Partner at Worldview Technology Partners, suggested that the window of opportunity for end-to-end core optical systems requires a time horizon of at least several years.

Wu-Fu Chen, legendary entrepreneur and Chairman of Acorn Campus, commented that the optical networking space has been over funded by venture capitalists.  There are too many prospective optical systems companies.  Chen expects to see a shift in carrier spending away from transport systems and to switching systems.  With a shrinking pool of healthy carrier customers, Chen says the start-ups most likely to succeed are those with in-roads into the key accounts.
April 19, 2001

NGN VENTURES:  CORE SWITCHING AND ROUTING
The best estimates from the world’s largest carriers indicate that Internet traffic is increasing at 8x every 18-months, said Bill Sickler, the new CEO of Caspian Networks, far outpacing Moore’s Law and making it inevitable that the current crop of core Internet routers will be swamped in the years ahead.  Massive scalability is a critical issue, but he points out that big pipe bandwidth is frequently used to cover-up other deficiencies in the Net.  Future requirements include convergence of multiple, separate networks (Frame Relay, ATM, IP) onto a packet core, carrier-grade hardware and software reliability, better-than-SONET link recovery performance and automated traffic engineering tools.  Keys to success must include breakthrough technologies and corporate execution.

Carriers face increasing pressure on their capital expenditure budgets, said Joe Kennedy, CEO of Pluris, making it critically important for them to choose a core routing platform with an extended product lifecycle.  He proposes that switch/router architectures must evolve from a single-chassis to a distributed or clustered configuration.  This would eliminate the wasted expense of using external ports for in-office router-to-router links.  The Pluris design will use parallel optical buses as its backplane for interconnecting large numbers of routing line cards.  The optical interconnect allows the routing cards to be up to 150 meters away while still performing as a single router.

In short succession the industry has moved from the Old Economy (bandwidth scarcity, TDM, Frame Relay, ATM) to the New Economy (the Internet euphoria, IP, DWDM) to the Real Economy (profits matter, 80% of businesses still use leased lines, pricing based on value-add), observed Ken Koenig, CEO of Vivace Networks.  Business customers require multiple services, but most of all they require network security, predictability, ultra-high reliability and a deterministic backbone for mission critical applications.  In response to these requirements, service providers have invested heavily in optical networks, with wavelengths extending from the access to the core.  However, Koenig believes that extracting profits from the optical network requires mapping 100,000s individual application flows onto virtual pipes across the backbone.  Vivace is building a next generation MPLS switch capable of provisioning these application flows for the logical service networks.

As carriers enter a period of core bandwidth abundance, one key to survival will be maintaining the lowest operating costs, said David Tolwinski, CEO of Tenor Networks.  This requires a converged, multiservice packet core.  It also requires that networks be as fully utilized as possible or overbooked in order to achieve the lowest costs.  Airlines understand these economic principles, said Tolwinski, but many network operators do not.  He estimates that for a national OC-192 network with 15 city nodes, each 1% of idle bandwidth translates into $4.7 million in wasted capacity.  Many networks operate under 50% peak capacity.  Tenor Networks proposes matching levels of service creation with pooled bandwidth, thereby allowing for over subscription while scaling QoS through the core.  A mesh-connected infrastructure would have no central points of blocking and could be driven by advancements in packet processors.

Although the core routing market is really only a two horse race (Cisco and Juniper), Jeff McCarthy, General Partner with North Bridge Venture Partners, believes the rewards for investing in this segment could be quite good.  Prominent start-ups have already failed (IronBridge) and it is likely there will be other casualties, but he believes the market will be big enough for multiple players.

Regarding the new competitors in its core routing market, Ammar Hanafi, VP Corporate Business Development for Cisco Systems, agreed with the views that the customer should come first in designing the next generation platform.  Given the painful reductions in workforce and spending currently underway in the company, it is unlikely that Cisco would acquire any more companies in the near term.  However, Hanafi noted that Cisco has always used acquisitions as a means of bringing strategic technologies into the company
April 19, 2001

NGN VENTURES:  NEW SERVICE ARCHITECTURES AND BUSINESS MODELS
With application and bandwidth use growing fastest at the edge, the metro core is highly constrained, observed John Schanz, President & CEO of MediaCenters.  The metro is the bottleneck, and there is a huge opportunity to provide connectivity and data interchange between carriers and service providers, who need a protocol-flexible infrastructure that supports wavelengths and packet services, is scalable, is fast to provision, and is cost efficient.  MediaCenters is creating a transport and service infrastructure of tight optical rings in metro areas to connect customers and facilitate partnering, or “bonding” between service providers.  Schanz believes that his company’s end to end solution that allows peering companies to connect their systems, focus on their specialties, and partner to take advantage of each others’ strengths, will allow ISPs to offer truly differentiated services.

Quality of Service (QoS) is necessary in networks, says Mike Gaddis, Chairman, President & CEO of CoreExpress, but getting meaningful end-to-end QoS is a huge challenge.  For businesses to move their mission critical data to the cost efficiencies of the public IP network, service providers must offer the same benefits as current private line networks: dependability, timely delivery, and security.  For them to do so, new economic incentives and a new network core are needed.  For QoS to be achieved, networks need a third party intermediary who will provide financial incentives for individual ISPs to expedite prioritized packet deliveries.  A new DWDM networking core with geographically based routing must also be created.  Finally, customers need visibility and constant monitoring capability to be convinced that a public IP based network can meet their needs.  Currently, CoreExpress has 9 active exchanges in its US network.

The data and networking business is very complex, so it makes sense for companies to outsource their networking needs rather than build and manage it all internally, says Mark Ward, President & CEO of GiantLoop Network.  GiantLoop is creating an enterprise customer network, which Ward says does not exist today.  This network must support multi-service protocols, including data center protocols (such as fibre channel), OC-n, IP and more.  Since 20% of IT consumers spend 80% of the IT dollars, Ward believes that service providers are making a mistake if they do not target this top level corporate market.  GiantLoop will work to win businesses’ mission critical data first, and expand from there to traditional data, voice, and media services.  Ward also feels that a network for enterprise customers can’t be a “dumb pipe” company.  It must be based on a service model, offering enterprises an IT-centric skill set, as well as lower costs, faster implementation and a single point of accountability.

Data storage needs are exploding, according to J. Kim Gennell, President & CEO of StorageWay.  Businesses are seeking a way to reduce the complexity of their storage needs, and improve scalability and deployment time.  The solution is to outsource to a storage service provider, who offers a compelling specialty in a vital, mission critical area that a generalist metro service provider will never be able to match.  Gennell says that StorageWay has developed a secure and reliable system for customers to share storage equipment on its network, which saves its customers the capital expense of buying their own dedicated systems, and offers better scalability and reliability.

The funding pendulum always swings too far to one side, says Andrew Rachleff, General Partner of Benchmark Capital.  It has recently done so for service providers, and since being a successful service provider requires a great deal of capital, this is a very difficult period for them.  Ironically, says Rachleff, this is the very best time to be a start-up service provider if you are fully funded, because there will be very few new entrants to compete with, and the incumbent service providers will be too slow to threaten them.  For the new system companies, a very challenging aspect of the funding climate is that there will not be any new service providers that they can sell their equipment to for a few years.  As a result, technology venture investing is now moving away from the funding of systems for service providers to funding technologies for enterprises, particularly for storage area networks.

Jason Martin, Director of Technology for Williams Communications, cautions new service providers that they have embarked on a marathon, not a sprint.  They cannot rely solely on technology to be a success.  They must offer more than technology, because every two years a new company can come along and buy all new systems that are faster and less expensive, quickly threatening to erase technology advantages.  Martin warns that technologies will disrupt this the service provider industry at a faster and faster pace.  As a result, he is concerned that companies that rely heavily on vendor financing will be under dangerous pressure to make future purchasing decisions based on their financing relationships instead of choosing future systems that offer the best technology.  Martin said that Williams has invested many billions in the last few years to create their data network, illustrating the high capital costs that face service providers.
April 19, 2001

• The 15th annual Next Generation Networks conference is scheduled for November 5-9, 2001 in Boston.  More information is online.  http://www.bcr.com/ngn/default.asp

FCC RULES ON INTERNET TRAFFIC RECIPROCAL COMPENSATION ISSUES
The Federal Communications Commission (FCC) ruled that telecommunications traffic delivered to ISPs is interstate access traffic, specifically "information access," thus not subject to reciprocal compensation.  Additionally, rather than immediately eliminate the current system, which has created opportunities for regulatory arbitrage and distorted market incentives, the Commission established a transitional cost recovery mechanism for the exchange of this traffic.  A transitional reciprocal compensation scheme has been established and the FCC has released a Notice of Proposed Rulemaking.  http://www.fcc.gov/Bureaus/Common_Carrier/News_Releases/2001/nrcc0114.html
FCC, April 19, 2001

FRANCE TELECOM TO TEST ACOUSTO OPTIC SWITCH FROM LMG
France Telecom will test a unique acousto optical switch from Light Management Group (LMG).  The switch uses vibrating crystals and sound waves to control the direction of light.  LMG claims its technology is roughly 1,000 times faster than micro-mirror MEMs technology.  http://www.lmgr.net
LMG, April 19, 2001

• LMG was formed in 1999 after Triton Acquisition Corporation reorganized under the Light Management Group name and acquired 100 per cent of Laser Show Systems Ltd.

BELLSOUTH REACHES 303,000 DSL CUSTOMERS, UP 49% OVER Q4
BellSouth added more than 88,000 DSL customers in the past quarter, bringing its total to 303,000.  BellSouth’s total data revenues were $1.03 billion, up 28% compared to the same quarter of 2000.  The bulk of the data revenues are from high-capacity business services.  LightGate, one of BellSouth’s top selling services, integrates data, voice and video over a fiber optic-based private line.  http://www.bellsouth.com/investor/ir_financial.shtml
BellSouth, April 19, 2001

NORTEL’S PRESIDENT OF OPTICAL INTERNET SOLUTIONS JOINS MITEL NETWORKS
Mitel Networks named Don Smith as its chief executive officer (CEO).  Smith most recently served with Nortel Networks as president, Optical Internet Solutions.  Mitel Networks is targeting the broadband-enabled, voice, video and data convergence market.  http://www.mitel.com/
Mitel Networks, April 19, 2001

• Mitel Networks was created in February 2001 after Mitel Corporation sold its Communications Systems division to Terry Matthews in a deal valued at C$350 million.

NORTEL NETWORKS REPORTS Q1 REVENUE OF US$6.18 BILLION, DOWN 28% SEQUENTIALLY
Nortel Networks reported Q1 revenues of US$6.18 billion, compared to US$6.32 billion for the same period in 2000 and US$8.82 billion for Q4 2000.  The company had a net loss for the quarter of US$385 million, or US$0.12 per share.  Photonic component revenues were down considerably, largely due to lower sales of Nortel Networks Optical Inter-city solutions.  The company also noted lower sales for its Local Internet solutions, driven by a sharp reduction in circuit switching, which was nearly offset by considerable growth in its Optical Metro and Core IP Network solutions. Nortel also saw strong growth in Wireless Internet solutions.  Nortel Networks attributed the disappointing figures to reduced capital spending by service providers and enterprises resulting from tighter capital markets and a severe slowdown in the US economy.  The company said that given the uncertainty as to the extent and timing of a meaningful rebound in capital spending following this period of industry rationalization, it could not provide specific financial guidance for the next quarter or full year 2001.  http://www.nortelnetworks.com
Nortel Networks, April 19, 2001

• By midyear 2001, Nortel Networks expects to layoff approximately 20,000 people from the number of employees at December 31, 2000.  Last month, the company announced plans to cut 15,000 workers by mid-year.

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