TERABEAM CUTS ITS LOSSES

The end of Terabeam as a standalone company last week brought to a close one of the most theatrical stories of the telecom bubble. Terabeam awed the industry in 2000, when AT&T Wireless CEO Dan Hesse gave up nearly $50 million in stock options to helm the free space optics vendor, which futurist George Gilder credited with “the most disruptive and redemptive technology in all communications.” But after four years, the company that initially collected more than half a billion dollars in investment had only about $4 million in 2003 revenue to show for it. Last week's merger with YDI Wireless valued Terabeam at roughly $50 million to $60 million — about the same amount that Terabeam had in cash at the time.

Terabeam's biggest problem, according to CTO John Schuster, was that bandwidth demand didn't grow fast enough to create a need for its products, which are ideal for 100 Mb/s to 1 Gb/s connections. “[FSO and millimeter wave] are technologies whose times are coming, they're just not here yet,” he said.

Others suggest Terabeam may have bet too heavily on major U.S. carriers at a time when their spending was greatly curtailed. The company maintained an unusually big headcount (130 people, averaging $31,000 in yearly revenue) to cater to that market. And it tailored its wares for big carriers, offering high performance at a high price, disdaining the more price-sensitive enterprise market, “which the executive team didn't care about,” said a source familiar with Terabeam.

“[Terabeam] had this mentality that, ‘We've got this A-list CEO who can get these deals done for us,’” he said. “‘It's OK, Dan will make a phone call, and we'll get this deal done.’”

SBC and at least two other unnamed Baby Bells are paying customers of Terabeam, Schuster said. They just don't pay very much. AT&T signed a contract of some sort with Terabeam in early 2003, a source said, but it never turned into sales.

Still, a YDI spokesman said the inroads Terabeam made with Baby Bells is one of the assets it is most eager to exploit from its new subsidiary.