Where is the communications market headed? It was unnecessary to visit the COMNET 2001 exhibition last week to answer this question – the answer is clear. The market is headed in the direction of IP (Internet protocol). Every analyst, venture capital fund manager, industry executive and experienced journalist will give you this answer.
Israeli company Ofek, recipient of the inland communications franchise last week, is one of the world’s first companies to deploy a purely IP telephony and added value services network. It aims to build up a critical mass. It is reasonable to assume that and there is no place like COMNET to strengthen this assumption.
COMNET reflects a world of disappearing TDM technology and has crowned IP the new global king.
Out of 400 companies presenting at the exhibition, only three are registered as Israeli. I found 12 Israeli companies, mostly registered in the US, all of which presented next generation products.
Native Networks
Current transmission systems of US company Sonet and European company SDH are extremely efficient in voice communications but less so in data transmissions. Logic dictates that in a world in which communications are heading in the direction of IP networks, in which data transmission will gradually increase until it takes control, transmission systems need to be improved so that they will be compatible with both IP and data transmission. If this logic is obvious, is there room for an Israeli start-up to pick up the challenge and lead the trend for improved transmission technology?
Native Networks general manager Dr. Gilad Goren says there is. “Large companies have stopped development and are focusing on finding comprehensive solutions. They purchase some parts from others or acquire other companies,” he explains.
This could also explain why the almost inevitable future of such a company is to be acquired by a giant corporation and turn into part of the comprehensive solution. Goren says that only Nortel is doing something in this direction and the best evidence is the meeting with the various standards organizations involved in the sector. Lucent and Fujitsu teams did not meet with Native Networks.
This does not mean Goren’s company has no competitors, but the competition comes solely from other start-ups. Goren claims his company is the only one, which has created a transparent system for all communications infrastructures and this is its major advantage. The system is transparent for any protocol, such as ATM, Ethernet, prime relay or fiber optics.
Israeli start-up Atrica of 3Com, for example, is gambling on Ethernet infrastructure. Another Israeli in this field is IPRad. A prominent US company, founded five years ago and also in the Etheret field, is Extreme Networks, which leads the “throw out Sonet” approach and is going for pure Ethernet.
Native Networks is in favor of combining worlds. Another two companies presenting at the exhibition with similar views are Coriolis Networks and Foundry Networks of the US. “Sonet still has good technology but it is not efficient. Etheret is efficient but the quality of service is not yet good,” Goren explains.
Native Networks was founded in October 1999 by Menahem Kaplan and Gilad Goren, formerly of Tadiran Telecommunications. In December 1999 the company raised $1.8 million seed from the Israel Seed fund, joined by Apax Israel. In August 2000, the company raised $18 million at a company value of $40 million, after money. The round was led by the Gorge Soros fund, Anshutz (Qwest owners’ fund that also invested in Chromatis), JVP and existing shareholders.
Native Networks announced at the COMNET exhibition the signing of an agreement with Lucent’s micro-electronics division Agar, spun off into a separate company barely a week before COMNET opened. Agar will manufacture the ASIC chip Native Networks developed and sell it to Native Networks for the network management system it also developed. This means that a separate agreement will be signed with each customer, based on his special transmission requirements.
Green would not complicate matters by talking about money with Agar, but the cost of manufacturing the chip is estimated at $2 million. Native Networks will apparently pay only half this sum, while Agar will make money from commissions on sales of chips within the network management systems. Before signing the agreement Agar conducted strict due diligence of Native Networks and it can be assumed that it expects to make considerable profit from these sales.
NextNine
The orange colored pavilion at the exhibition belonged to NextNine, which was named RTview and raised $20 million up to a week before COMNET opened. Founded in 1998, NextNine develops electronic support capabilities: monitoring, diagnostics and corrections for the communications market. The company’s customers are equipment manufacturers like Cisco, Lucent, Motorola, Qualcomm and Nokia.
Today’s network management systems are expected to identify problems and isolate the responsible equipment. They still do not indicate the cause or how to correct them. NextNine developed a server that is placed at the customer’s site and connected to its system, which collects information during routine work on all available parameters. The moment a problem occurs, with one click it can be identified, a solution found, and the manufacturer approached, sending him the relative information and receiving quick service.
NextNine’s system is expected to be more complicated. The company announced a broader solution at COMNET, beyond the customer’s server, to be launched only in summer, which will enable remote transfer of information and correction via the systems.
A week before COMNET opened, the company announced it has raised $20 million at a company value of $65 million, after money. Its development center is located in Ramat Gan and it has a staff of 60. NextNine headquarters are in Cambridge, Massachusetts, with a staff of 5.
Why NextNine? Company CEO and founder Eldad Maniv says, “Communications equipment needs to have 99.99% availability today. We add another 9 and bring it up to 99.999%.”
ComGates
After Check Point’s most prominent pavilion, ComGates’ pavilion was the biggest among Israeli exhibitors. ComGates operates in next generation communications infrastructure and develops technology for merging voice and data communications. Its line of products enables smooth conversion from networks based on printed circuits to networks and services based on information packets.
ComGates was the first Israeli company to launch a softswitch in August 2000 designed to manage future IP-based communication networks using existing telephony networks. Sofswitching is considered the last word in communications network switching. The software sits on the computer and manages the network instead of the big switches, which currently do the job.
ComGates launched a new product at the COMNET exhibition, which enables telecommunications companies to use various voice platforms and protocols in VoIP.
The new product facilitates transparent connection between the various VoIP protocols and among end points. The product can be used for 20-120 telephone calls per second and has a capacity for 2,000-20,000 calls simultaneously. The company, founded in late 1998 by Jacob Tirosh and Danny Bukshpan, currently has a staff of more than 80.
Omegon
Omegon developed software with comprehensive "real-time" active testing and diagnostic capabilities to minimize downtime, while maintaining high levels of application performance, such as e-mail, telephony, compression files and so on.
Company president and CEO Amir Biran illustrates; “Let’s say you have a bottleneck on the network. You want to be able to change it before the bottleneck occurs. One it occurs, it’s very difficult to know what caused it with all those intersections and you don’t know how to regulate traffic so that it will flow.
“To check the network, we send traffic that passes through all the intersections. We can see how it arrives from each point to the next. We also get reports when exactly the traffic passed.”
Omegon’s product has been commercial since October 2000 and sales so far have reached hundreds of thousands of dollars. Biran is still unwilling to divulge his customers’ names. He says that he recently received a large order from a customer in Israel, whose name he is also unwilling to disclose.
Like all start-ups, Omegon claims to be a leader and unique. Biran says that the market is saturated with competitors manufacturing testing boxes, but these are more expensive. Omegon’s software sits on the personal computer and does the job for much less.
Omegon launched another component of its software at COMNET for testing and diagnosiing IP networks for telephony. The new product enables service providers to verify that voice calls over the network reach their destination at the required quality.
Aptonix
Aptonix first appeared at the Telrad Networks pavilion at the TeleCOM 2000 exhibition at the Tel Aviv Exhibition Center held in November 2000. Aptonix is one of several start-ups Telrad Networks founded as part of a new strategy in the past two years formed by general manager Reuven Avi-Tal. The development team from which Aptonix emerged in September 1998 was set up a year ago.
In some respects, Aptonix constituted an anti-thesis. It is not going into IP, but develops and manufactures communications equipment for the deployment of broadband communications services over existing copper wire infrastructures. The platform the company is developing can be used to swiftly deploy broadband access solutions at high quality for video, pay-on-demand video, interactive games, distance learning and auxiliary services, such as unified messaging, video calls, etc. Aptonix’s unit is carrier grade, scalable and suitable for all types of user environments and at a competitive price.
Congruency
Congruency is definitely going for big. The company provides IP infrastructure services for corporate customers and plants for broadband transmission of telephony and messaging services and content applications. The system was officially launched at COMNET.
Congruency offers a comprehensive solution on IP infrastructure. The underlying principle is that all services (voice and data) arrive via broadband while the analog lines are canceled. Services include unified messaging, a telephone book on the telephone screen, content via the telephone and network management. The solution naturally includes VoIP developed by the company, with a screen to display data transmission. In principle, ordinary IP telephones can also be used (with no screen).
Two US companies (a New York telephone company and a New Jersey Internet provider) have been testing the system for five months and recently put it to full use.
Avaya
The regular visitors to the communications exhibitions meet new large companies each time, some of which were formerly divisions of other companies and are now trying to find their own direction. Five years ago, Lucent was spun off from AT&T and tried to penetrate its famous switching with the red ring. This time, Avaya was spun off from Lucent to operate in corporate telecommunications.
Avaya faces a double challenge – building a new brand name and escaping the previous one from Lucent, which is in deep trouble. Avaya takes care to delete Lucent’s name from every document, transparency and door post of its New Jersey office.
The company published its first quarterly financial reports last week, in which it reported sales of $1.79 billion (an increase, compared with Lucent corporate division results the previous year) and only $16 million profit (down 77%). The reports show a 100% rise in data transmission communications, with no growth at all in voice communications. Avaya, which focuses on IP communications, believes it doesn’t matter when a technology is in the market, what’s important is when the need for it is created.
Published by Israel's Business Arena on 8 February, 2001