On joining Optisphere, John Beagley's first challenge was to build up awareness of the company's name, expertise and capabilities. The basis for this exercise was to relate Optisphere to the 'solid' Siemens brand name. This aspect of the company was seen as a key to winning with the large, established, carriers. In tandem with this strand of the campaign, Optisphere was promoted as a new, agile, company, able to respond rapidly to customer needs in a turbulent market. Optisphere has, therefore, sought to develop a position in the market through leveraging the best aspects of both worlds.

Optisphere currently employs approximately 170 staff; the majority of these are with the company's development group, based in Boca Raton, Florida. Sales and marketing and operations logistics groups account for most of the remaining staff, around 40 of which are based in Reston, Virginia. Here the company also has a software development team focusing on a management platform for optical networks - termed ASTN (Automatic Switched Transmission Network). This is a development stage product, not due for imminent commercial release.

As a subsidiary of Siemens, Optisphere is selling product and technology developed by its parent in Germany. However, the systems that Optisphere markets have been tailored by the company's Florida-based development team to meet U.S. carrier requirements - features such as U.S.-centric TL-1 and SL-3 interfaces have been developed here. The TEX (10 Gbit/s Transponder Multiplexer) product has also been developed by this team.

John Beagley believes there is currently no reason for Optisphere to be spun-off from Siemens.

Optisphere's range of systems comprises the short 'fat pipe' product, with a reach of up to 600 km, the long-haul product, stretching up to 1,800km, and the ultra long-haul product, offering reach of up to 4,200 km - all without 3R regeneration. Each of these systems is based on the same platform, which offers from 80 to 160 channels and bandwidth from 2.5 to 40 Gbit/s. It was noted that the 40 Gbit/s capability is, at present, purely technological, as there is no demand in the market for this system capacity.

Commenting on the product range, John Beagley said, "Our core market is the long-haul, where we expect to see the majority of our sales."

The systems are transparent, being fully compatible with other vendor's equipment; Mr Beagley stated that the product has no proprietary interfaces.

Optisphere also supplies a 10 Gbit/s thin-mux, which may be integrated with the DWDM systems to increase system flexibility for carriers. The company's TEX product enables four 2.5 Gbit/s systems to be run off from one 10 Gbit/s transponder - this feature both optimises use of available bandwidth and results in cost savings.

40 Gbit/s market

John Beagley expects to see activity in ultra-long haul and 40 Gbit/s market sectors in late 2003 or early 2004. With regard to 40 Gbit/s systems, Mr Beagley commented, "We have developed a system for field trials - Worldcom conducted a field trial of our 40G over 80 wavelength system, transmitting over three spans of standard single-mode fibre for 250 kilometers in February 2001. From mid-2002 on, I anticipate a number of trials for 40 Gbit/s equipment with key carriers."

Optisphere's 40 Gbit/s system offers two applications - the transponder, driven by, amongst others, router applications, and four times 10 Gbit/s multiplexer application.

Test cycles

Testing cycles for the company's products vary significantly - from one to nine months - depending upon the individual carrier and the infrastructure that is in place. Mr Beagley noted that one customer is currently deploying the TEX product after only a one-month testing and trial programme.

SONET

The lack of a SONET offering from Optisphere was broached with Mr Beagley. He replied that this was purely a factor of Siemens' historical lack of presence in the U.S. market. Siemens does have a significant market share internationally with its SDH product. The absence of a SONET specification product was partly due to the major players - Lucent, Nortel and Fujitsu - having the SONET market 'locked up'. John Beagley commented, "This is no longer an issue for us in the U.S. - our focus is on next-generation networks."

Intellectual property

Siemens Optical Networking group holds all intellectual property rights relating to Optisphere's systems. At this time, no technology used in Optisphere's products is licensed from external companies. However, the company is not averse in principle to employing the technological capabilities of outside companies where this will provide an edge in the market.

Discussing further the role of Optisphere, John Beagley commented that the company ensures requirements specific to the U.S. carriers are embedded in Siemens' products, primarily verifying that equipment fits the customer's needs.

Long-haul

Regarding development of the ultra long-haul market, John Beagley said, "The market is there - it exists. It is a portion of the long-haul market, I would estimate around 25% to 30%. This market will continue to develop as fibre is lit and overall fibre utilisation increases."

Mr Beagley cited an estimate for the total long-haul market in the U.S., over the next three years, of $15 billion. Based on the supposition above, this values the ultra long-haul segment at around $3 billion. John Beagley said that Optisphere bases internal estimates on discussions with carriers - this gives a good guideline as to how much money is going to be expended, and where in the networks it will be spent. As a result of these discussions, Optisphere does not envisage the long-haul sector of the market growing significantly during 2002 or 2003.

Market share

A panacea for this uninspiring outlook is offered by the company's belief that it will take market share away from other vendors through offering a better value proposition. Mr Beagley said that Optisphere's sales in 2000 totalled approximately $250 million, and that long-haul equipment accounted for around 90% of this sum.

In pursuit of the above stated aim, Optisphere is looking to square up against a number of established players in the optical equipment market. Particular targets include Ciena, Nortel - due to their massive installed base, Corvis - as an up-and-coming player in the long-haul and ultra long-haul sector, and lucent.

Relating to ultra long-haul capabilities, the case of Qtera was mentioned, where Optisphere lost a number of staff to the company subsequently acquired by Nortel. Mr Beagley stated that this had not had a discernable impact on Optisphere, due largely to the fact that the core research and development work - and staff - behind the product reside with Siemens in Munich, Germany.

Differentiators

According to John Beagley, "When you go to a customer today, they are only really interested in the cost of your system and the cost to manage it, beyond that, revenue generation is a distant second. Optisphere is focused on offering cost containment and reduction and I feel that we are addressing this issue successfully. Particularly in the current market, the value proposition has to be 'we can do more for less'."

The company sees its primary value proposition within the 'multi-haul' nature of its DWDM platform, with the highly scaleable nature of the product as secondary. Cost savings are realised by carriers deploying a single product platform across different network types - with respect to technical training, product maintenance and upgrade costs. Systems may be scaled incrementally as the need changes.

"Our product - based on the MTS 2.0 multi-haul DWDM platform - is modular and flexible, it provides capacity from 2.5 Gbit/s to 10 Gbit/s, and eventually up to 40 Gbit/s, over the same fibre."

Customers

Optisphere has not publicly announced customers, though Worldcom is acknowledged as the company's key customer, and originally prompted the formation of Optisphere. John Beagley did comment that Optisphere currently has three customers and also that 'multiple carriers' are conducting system trials.

Concerning the addressable market, Mr Beagley estimated there are less than 30 carriers that are potential customers, and that Optisphere 'needs' perhaps eight of these. He added, "A vendor could have eight customers and be the market leader in terms of share."

Discussing recent changes in the optical equipment market, Mr Beagley said, "Two years ago, if you could offer a tested 10 Gbit/s module you would have customers. Now it is far more difficult to make sales, only strong companies are going to survive. Being a successful vendor today ultimately means making your customers successful."

Commenting further on the challenges faced by vendors and carriers currently, John Beagley noted that lower equipment prices combined with increased functionality will not generally lead to selling more boxes to any one customer. Any savings in equipment costs will be passed to the carrier's shareholders. Similarly, vendors cannot afford to 'give away' their equipment, as they also have to pay out dividends to the shareholders.

Optisphere has engaged in a number of partnerships and alliances with external companies in order to gain specific technologies and capabilities pertinent to the U.S. market. Conversely, the company would be prepared to licence out its technology to third-party vendors, where such an arrangement would benefit its customers.

Amongst partnership agreements that Optisphere has engaged in are:

• Alidian Networks - an ongoing agreement exists related to a metro DWDM aggregation application.

• OMM - a project, now ceased, to develop a large-scale optical switch based upon 3D MEMS technology. Mr Beagley pointed out that the 3D MEMS project was abandoned as a result of Optisphere concluding that this was not a commercially viable product at this time, independent of OMM's decision to drop the project. Optisphere does utilise OMM's 2D MEMS products or technology.

The primary driver behind such alliances is obtaining access to customers otherwise inaccessible to Optisphere. Likely future allies would be companies such as Fujitsu and Ciena, though John Beagley emphasised that such activities remain ancillary to Optisphere's core business.

Siemens itself does have partnerships in the optical networking field, though to date these have covered international markets only - excluding the U.S. An example of such an alliance is Siemens OEM agreement with ADVA for metro equipment. This alliance is of relevance to the international - ETSI - market only.

In terms of Optisphere and Siemens general strategy on collaboration, John Beagley said, "Where we, Siemens or Optisphere, hold a leading technological position we will utilise this. However, if a carrier comes to us requesting a product or technology in which we do not hold a leading position we will approach outside companies that do."

Mr Beagley expressed the view that customers like to be able to go to one vendor for all of their requirements, and furthermore, to know that the vendor will be able to meet their future needs. As an example, he cited the aggregation of services in metro networks, where Siemens did not possess the necessary capabilities in-house to handle traffic protocols such as GBE, ESCON, or FICON, and so sought to establish partnerships in order to fulfil the need.

On this topic, John Beagley was asked why, given the massive research and development resources wielded by Siemens, the company has apparently neglected to address certain technology shifts, and why the company did not develop more technology in-house?

Mr Beagley responded that even a company on the scale of Siemens found it necessary to focus on some areas to the exclusion of others. Regarding the first-generation DWDM, where Siemens was entirely absent from the market, Mr Beagley replied that DWDM was a U.S.-specific technology initially - a market in which Siemens then had no presence. He added, "With the winning of the Worldcom contract, and subsequent formation of Optisphere, this situation has now been fully addressed."

Mr Beagley said that as regards the technology, Optisphere has passed the critical milestones necessary for success: "Our long-haul platform is proven and ready for launch in the final quarter of 2001. The system is ready for rollout in iterations up to 4500 km - all of the components necessary to provide this capability, including Raman amplifiers and software, are present."

Regarding customers, Mr Beagley is confident - "Our interactions with the carriers are very promising, I am not concerned about win-rate - the customers like us!"