Mixed signals

In a departure from the traditional technology focus, companies at last week's National Fiber Optics Engineering Conference in Baltimore concentrated on economic issues such as reducing service providers' capital expenditures in an effort to attract enough business to survive.

This need for the industry to adopt such a bottom-line strategy is the result of various mistakes, according to Tellium Chairman and CEO Harry Carr, who attributes most of the problems on the “Big Three” vendors — Nortel Networks, Lucent Technologies and Cisco Systems.

“The Big Three helped fuel the buildup of companies that weren't real,” Carr said, noting that the vendors financed equipment that was never deployed. “They were buying companies left and right. It was money for nothing, and the companies for free. They were getting market share by buying customers.”

It may be appropriate that Carr turned a phrase made famous in a Dire Straits song because many believe the band's name is reflective of today's optical industry. However, Carr disputed recent statements from Nortel's President and CEO John Roth that the problems include slowed traffic growth during the last quarter.

“The fundamental demand [for bandwidth] is continuing,” Carr said. “[Service providers] still struggle to keep up with demand growth.”

For Cisco, growth traditionally has come via acquisition, but the company's $150 million purchase last week of AuroraNetics marked its first buy of the year. In making the deal, Cisco strayed from its noncomponent strategy to buy the developer of silicon technology used with resilient packet rings, which essentially are data-optimized fiber-optic rings.

“[AuroraNetics] has one of the few teams that reliably delivers silicon,” said Graeme Fraser, vice president and general manager of Cisco's metropolitan IP access business unit. “The acquisition was based on the talent of the group.”

Fraser said the acquisition will accelerate Cisco's 10 Gb/s agenda in the metro area.

“We want to make sure we are well-positioned in the future in terms of competition,” he said, noting that carriers are still spending money in the metropolitan market. “Areas like the Sonet access market with the 15-454 product are still doing well. The market is still spending in that area.”

Cisco hopes buying AuroraNetics will not be a repeat of its 1999 purchase of Monterey Networks, which was supposed to provide the foundation to develop a wavelength router. Instead, Cisco abandoned the project this spring and later alleged Alcatel tried to mislead customers about the product and take proprietary information, according to a lawsuit filed in the U.S. Circuit Court in Sherman, Texas. This differs considerably from the market-driven explanation delivered by Carl Russo, Cisco's group vice president of optical networking for Cisco, at the time of the announcement.

“It's a tough decision, but the bottom line is that in the current economic environment Cisco is focusing on business areas that provide immediate revenue growth,” Russo said at the time.

Cisco may be adding to its portfolio with AuroraNetics, but Carr said the strategy isn't working. Rather than considering Cisco, Lucent and Nortel jacks-of-all-trades, Carr believes the more appropriate description is “joke of all trades.”

“No one has the capability [to offer] an end-to-end solution,” said Carr, who nonetheless believes Cisco is better positioned than Lucent and Nortel. “They just ended up being big banks.”

Vendor-financing mistakes combined with tightened funding has changed the landscape considerably, Carr said. Carr, a former Lucent employee, said it would have been “crazy” for people to intimate that Lucent could go bankrupt in a matter of months.

But talk of bankruptcy isn't stopping other deals, as Metro-Optix last week landed a two-year, $15 million deal with Network USA. The Louisiana-based competitive local exchange carrier will deploy Metro-Optix's CityStream bandwidth manager.

“With the economy the way it is, we always check out our customers to make sure they have money, and [Network USA] does,” said Dana Hartgraves, director of marketing for Metro-Optix.

Although the dark-fiber market has been hit hard by the slump, Cogent Communications and Level 3 Communications managed to squeeze out a deal. Once again, however, the deal was in the metropolitan arena. Level 3 will purchase Cogent's metro fiber, and Cogent will gain access to Level 3 data centers.