Even as the major telco vendors struggle to sell into large legacy networks, a growing interest in quick, easy and affordable advancements in IP telephony is fueling development at a number of startup companies.
In the same week that Cisco Systems Inc. issued disappointing revenue and grim growth figures, two competing IP media server vendors scored large financing wins. The news could indicate that service providers, particularly those with expansive IP networks, such as Global Crossing Ltd., Qwest Communications Inc. and Level 3 Communications Inc., will continue to roll out more innovative IP-based services.
SnowShore Networks Inc., which builds IP media servers to facilitate enhanced voice communications, raised $20 million in a second round of equity funding last week.
"Despite the general spending slowdown, the thing that investors see is that this is still a huge opportunity," said Joel Hughes, CEO of SnowShore, in Chelmsford, Mass. "The fact is, Verizon [Corp.] is going to spend $17 billion this year instead of $19 billion."
SnowShore, which is targeting interexchange carriers with IP networks, wireless carriers and incumbent telcos, plans to begin delivering its first products at the end of the year. IP media servers help carriers develop and deploy new IP services, translating—at least in theory—into cost and time savings for enterprise users.
"The capital expense and operating expense [of IP architecture] is lower," Hughes said. "The promise is that carriers will be able to more rapidly develop customized applications."
Rival media server maker IP Unity Inc., in Milpitas, Calif., secured $24 million in a third round of financing last week. IP Unitys media and application servers are designed to help carriers offer differentiated services, including conference bridging, interactive voice response and unified messaging.
The major infrastructure vendors have taken notice of the trend and are also planning for increased IP-based equipment sales. Despite painting an overall grim near-term picture for growth last week, Cisco CEO John Chambers singled out IP-based equipment as holding promise.
Cautioning that revenue growth in the coming quarter is expected to remain flat or even drop 5 percent, Chambers said that more than half of Ciscos Fortune 500 customers are contemplating IP upgrades. IP telephony and security services have the potential to become the San Jose, Calif., vendors "next billion-dollar" units, he said.
However, many service providers are looking to smaller vendors to deliver the most efficient equipment for advanced networks. Seattle-based XO Communications Inc., which is aggressively promoting its Ethernet and wavelength services, is seeking more- scalable systems than what vendors such as Cisco are offering.
"What Im looking for is cheaper-per-unit prices," said John Mullan, director of private data networking at XO. "The giants are having a problem because theyre not being creative."
For more on Cisco earnings, go to www.eweek.com.