Knocking on ILECs' doors

With its competitive local exchange carrier (CLEC) customer base deteriorating at an alarming pace, Copper Mountain Networks this week will announce a DSL product targeted at the cash-rich incumbent local exchange carrier (ILEC) market in hopes of creating more stable revenue streams for the suddenly struggling vendor.

Copper Mountain's VantEdge 3000 Broadband Concentrator lets carriers offer multiple services over DSL more easily — and profitably — by addressing many of the limitations inherent in ATM DSL access multiplexers (DSLAMs) found in most ILEC networks, according to Bryan Long, Copper Mountain's vice president of marketing.

While many premium broadband services can be offered via DSL, ATM DSLAMs require an end-to-end virtual circuit for each customer and each service, Long said. Because managing all these virtual circuits is cumbersome, offering multiple services over DSL is not cost-effective for ILECs, he said.

“The ATM transport system is getting bogged down with virtual circuits — even before you add traffic to the network,” Long said.

To address this problem, the VantEdge aggregates traffic and provides IP intelligence to traffic from existing ATM DSLAMs at the central office or remote terminal. From this point, carriers only need to add one virtual circuit for each new service deployed, instead of an end-to-end virtual circuit for each customer.

Such functionality is a hallmark of Copper Mountain's IP-oriented DSLAMs, but ILECs have deployed ATM-based DSLAMs — primarily from Alcatel — because they were a “natural extension” to their existing networks, Long said.

“I've talked with ILECs who have said, ‘I wish we would have [pursued IP-based DSL architectures], but we didn't and that's not going to change. What can you do with what we've got?’” he said.

The VantEdge is Copper Mountain's response. It is being introduced in the wake of a steep decline in the company's first-quarter revenues, from $60.8 million last year to $8.2 million this year.

“We expect that we will continue to be faced with these challenges for as long as the CLEC industry experiences financial difficulties or until we can successfully shift our business away from reliance on our CLEC customers,” according to an SEC document Copper Mountain filed last week. “The future success of our business may substantially depend on our ability to successfully penetrate international markets and domestic ILEC customers.”

Thus, Copper Mountain needs VantEdge to succeed, according to Peter Meade, managing partner at TeleResearch.

“These new products are more crucial for them than the debut of their first DSLAMs,” Meade said. “This is really the crossroads.”

Buoyed by the fruits of several profitable quarters, Copper Mountain has enough cash to operate for at least 12 more months, according to its SEC filing — enough time for the VantEdge to complete ILEC trials, expected to begin in the fourth quarter.

While multi-tenant unit prospects in Asia are encouraging, and negotiations continue with AT&T — the buyer of NorthPoint Communications assets as a prelude to entering the DSL market — gaining traction with ILECs is crucial for Copper Mountain. Thus, the bet on the VantEdge is a big one because Copper Mountain DSLAMs are not part of ILECs' futures. “We're not going to get any of the remote-terminal business,” Long said.

Although the VantEdge provides a solution the ILECs need and the quality of Copper Mountain's products has never been an issue, Meade said the vendor still faces an uphill battle trying to enter ILECs' networks. A key factor may be whether Alcatel develops a solution to the virtual-circuit dilemma, he said.

“If I'm getting all my stuff from Alcatel anyway, why would I want to go with Copper Mountain?” Meade said.

If ILECs buy the VantEdge, it should generate reliable revenue streams and also give Copper Mountain access to the financial markets. If not, Copper Mountain's prospects may be bleak.

“The worst-case scenario is the CLEC market dries up completely, the ILECs say ‘No’ and we don't get any more funding,” Long said. “If that happens, we're dead.”

A freefall down Copper Mountain

Q1 revenue from top four customers (in millions)

	2000	2001*
NorthPoint	$17.8	N/A
Rhythms	$7.8	N/A
Lucent	$17.5	N/A
DSL.Net	$7.1	N/A
Total	$50.2	$0.98
* Copper Mountain declined to release individual data
Source: Copper Mountain