Competitive Intelligence Report
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Tachion Speeds Ahead: Wins Contract with TelePacific Communications
Report ID: 200117-0002-01.NV Current Perspective Rating: Positive
Report Date: January 17, 2000 Vendor Importance Rating: High
Analyst: S. Byars Industry Impact Rating: Moderate/High
REPORT SUMMARY
Event Summary: VIEW PRESS RELEASE January 17, 2000 -- Tachion Networks announced a multi-year contract valued at up to $35
million with TelePacific Communications, a business-to-business telecommunications and
Internet service provider on the west coast. TelePacific will use Tachion's FUSION 5000
switches in a multi-city rollout over the next three years to provide integrated local and
long distance voice, data, Internet, and multimedia services to corporate customers. The
cost savings of the Tachion solution allow TelePacific to expand into more cities than would
have been possible using traditional central office technology. The first applications to be
provisioned off the Tachion platform will be voice and data over SDSL, with the Tachion
switch furnishing network support for TelePacific's current business voice services.
Analytical Summary: We are taking a positive stance on Tachion's customer win of TelePacific, as this is the
first use of a next-generation switch as a local service creation platform. We believe
Tachion's customer win will have a moderate to high impact on the industry. Some time will
be required to complete interoperability testing and the roll out of TelePacific's network,
given the range of voice services planned and the fact that other network elements have yet
to be selected. However, if the mediation switch vendors do not quickly assemble the
functions needed to create a local service creation platform, they will be left pursuing only
the tandem bypass and Internet call diversion applications. The customer win with TelePacific
is of high importance to Tachion, as the company had been viewed as trailing the mediation
vendors in terms of both completing its product development and winning customers.
ANALYTICAL ASSESSMENT:
Current Perspective Rating: Positive.
We are taking a positive stance on Tachion's customer win with TelePacific Communications.
We believe this commitment by TelePacific (for $35 million over a three-year period) is the
first use of a next-generation switch as a local service creation platform. TelePacific
provides local and long distance voice, data, and multimedia services for businesses such as
corporate, university, hotel, and hospital clients. TelePacific focuses on small and medium
size businesses, offering comprehensive voice and Internet services. The company plans to
expand its geographic coverage using voice over DSL in conjunction with Tachion's FUSION
5000, which provides some 25 subscriber call features from 1-800 services and calling card
capabilities to key Centrex and CLASS services.
We believe Tachion's customer win will have a moderate to high impact on the industry.
Tachion's goal is to work with emerging service providers and the financial community to
create a new business model for carriers that leverages its Collapsed Central Office concept.
The Collapsed Central Office allows service providers to build new, low-cost COs and deliver
voice and data services at improved service margins per square foot. The Collapsed Central
Office uses the FUSION 5000 as the service creation switch, which works in conjunction with
VoDSL-enabled customer located equipment (CLE) and QoS-enabled DSLAMs in TelePacific's
network to create a whole new architecture for delivering bundled services. In delivering
bundled services at one-fifth to one-tenth the cost of legacy solutions, the Collapsed
Central Office clearly challenges architectures offered by the incumbents, Lucent and Nortel.
We believe that Lucent and Nortel will not only try to position the FUSION 5000 as a risky
new product from a small start-up, but will also lower the prices of their 5-ESS and DMS
switches, especially in small configurations for emerging service providers.
Our only concern regarding the impact of Tachion's customer win is the time that may be
required to roll out this network and prove its reliability. Given the number of services
offered and the fact that other network components (including CLE and DSLAMs) have yet to be
selected, we believe that a great deal of interoperability testing will be required.
In a separate release, Tachion also announced a second round of funding in the amount of $26
million. The structure of the funding is worthy of comment because the investors are service
providers and well-known telecom entrepreneurs, as well as investment banks and venture
capitalists. New investors in this round include Gabriel Communications, UniDial
Communications, Roy Wilkens (Chairman of Williams Communications), and Clark McLeod (Chairman
of McLeod USA). These investors further strengthen the company's vision and ability to
establish high-level contacts with leading service providers. Leading the investment round
are Goldman Sachs and J.P. Morgan Investment Management Inc., investment banks that also
provide billions of dollars to emerging service providers to build out their infrastructures.
Winning the TelePacific network is certainly of high importance to Tachion. The company had
been viewed as trailing the mediation vendors in terms of completing its product development
and in winning customers. In addition, Salix (now part of Tellabs) has joined Cisco and
Unisphere in securing sales and service organizations much larger than Tachion's. All of the
mediation vendors, including Convergent and Sonus, have announced customer wins, deploying
their platforms either for Internet call diversion or tandem bypass initially. None of the
mediation vendors has yet to assemble the necessary functions to deploy their products as
service creation platforms. Meanwhile, Tachion's stated goal was to aim straight for the
local service environment. If it can successfully test and roll out the TelePacific network,
the company will have leaped over the mediation vendors.
Vendor Importance Rating: High.
We believe the customer win with TelePacific is of high importance to Tachion.
· This customer win elevates Tachion to the forefront in the race to provide service-creation
platforms for next generation service providers. Tachion has effectively leaped over the
efforts of mediation switch vendors (including Cisco, Convergent, Sonus, Tellabs/Salix, and
Unisphere) that, while finding winning applications for their platforms, have not put
together total service creation environments.
· This win ratifies Tachion's efforts to position its Collapsed Central Office strategy as
being distinct from that of the mediation switch vendors. Prior to this win, the company had
been fighting an up-hill battle against the perception that it had entered the market late
and was trailing the mediation vendors.
· The ability to publicize this win bolsters Tachion's efforts to change the business model
for CLECs and openly challenge the legacy business model built around Lucent and Nortel voice
switches. Other emerging service providers will certainly be monitoring the rollout of
TelePacific's network, providing visibility for Tachion's Collapsed Central Office solution.
· The compelling cost savings of Tachion's FUSION 5000 allowed it to be selected early in the
design of TelePacific's network expansion. This allows Tachion to be involved in the
selection and qualification of other network elements, helping to ensure end-to-end
interoperability and reliability of the new network architecture.
· This customer win serves to confirm the cost-effectiveness of Tachion's Collapsed Central
Office as compared to legacy solutions from Lucent and Nortel. Lucent is an incumbent in
this account, with TelePacific openly marketing the custom calling features offered via its
5-ESS switches. Tachion's FUSION 5000 will not be extending services from these switches,
but instead will be creating new local services.
Industry Impact Rating: Moderate/High.
Tachion's customer win with TelePacific will have moderate to high impact on the overall
convergence industry.
· If TelePacific's network can be rolled out in a timely fashion, it will put pressure on
legacy architectures from Lucent and Nortel. These huge incumbents have articulated rational
strategies that migrate their installed bases to converged networks but do not fundamentally
change the business model for CLECs entering greenfield territories.
· The successful rollout of TelePacific's network architecture will set the stage for more
new start-ups entering the service creation market, as it will prove that it is possible to
compete with Lucent and Nortel in greenfield environments.
· By drastically lowering the cost of the service creation element, Tachion's Collapsed
Central Office could significantly accelerate market growth for the other elements of the new
network architecture, especially integrated access devices and the DSLAMs that support VoDSL.
· Mediation vendors, especially those without in-house softswitch developments (such as
Convergent, Sonus, and Tellabs/Salix), could be relegated to filling the market niches for
tandem bypass and Internet call diversion if they do not acquire or partner for the remaining
pieces of the local service creation environment soon.
Competitive Positives:
We are taking a positive stance on Tachion's customer win of TelePacific, and we see the
following competitive positive points:
· Tachion has pursued an aggressive market strategy that leap-frogs the mediation vendors
with respect to voice services, and the company also offers TelePacific a sane middle ground
in working with the technologies that the service provider is already using. Instead of
starting with a VoIP approach, Tachion is offering TDM over ATM transport capabilities, with
a near-term migration strategy to AAL2 for VToA.
· The FUSION 5000's integration of TDM, ATM, Frame Relay, IP, and SS7 furnishes a migration
path for TelePacific's network. An IP engine, currently under development, will enable
TelePacific to offer bundled Internet service. SONET add/drop mux capabilities enable
low-cost trunking between TelePacific COs.
· The FUSION 5000 furnishes a single-vendor solution for voice services, allowing TelePacific
to deploy COs without third-party softswitches. We believe that not requiring a third-party
softswitch will reduce the test time required to verify interoperability.
· TelePacific's application leverages the FUSION 5000's ATM capabilities, as subscriber
traffic from the DSLAMs and the transport to the IXC in TelePacific's network are ATM
formatted. Though most of the mediation vendors have made announcements regarding ATM
capabilities, none have delivered their ATM interfaces.
Competitive Concerns:
Although we are taking a positive stance on Tachion's customer win with TelePacific, we do
have some areas of concern:
· We believe that customer trials for local service creation platforms will require longer
test cycles (which will delay customer service) than tandem bypass and Internet call
diversion applications. If TelePacific's test cycle extends longer than expected, not only
will mediation vendors have time to catch up, but other CLECs will have a legitimate reason
to stay with Lucent and Nortel solutions.
· We are concerned that TelePacific has yet to select a vendor(s) for customer located
equipment or for QoS-enabled DSLAMs. Although Tachion will now be involved in qualifying
these pieces of equipment, multi-vendor interoperability in this arena is still problematic.
· Tachion has yet to demonstrate MGCP capabilities, and we believe the company will have to
establish some mechanism to allow partners to furnish capabilities such as IVR and
auto-attendant. TelePacific will want to continually add functionality in order to provide
new carrier-sourced services to small and medium businesses, and operation with a softswitch
using MGCP will help support ongoing requirements.
· Growing its service and technical support organization to handle customers like TelePacific
will be a challenge for Tachion. TelePacific's serving area is California and Nevada,
whereas Tachion is based in New Jersey.
Vendor Actions:
We suggest that Tachion consider the following actions to strengthen its market position and
facilitate TelePacific's rollout of next-generation services:
· Obviously, Tachion needs to do everything in its power to facilitate a smooth roll out at
TelePacific. Other service providers will certainly be monitoring these deployments to
determine if Tachion, a start-up, can support their requirements.
· We would like to see Tachion interconnect TelePacific's FUSION 5000 with ATM trunks in
different metropolitan areas. These tandem trunks would allow TelePacific to create tie
lines, bypassing the IXCs and leveraging the FUSION 5000's integrated SONET capabilities.
· Tachion needs to announce its schedule for supporting AAL2, which provides dynamic
bandwidth utilization, a key to the efficient use of integrated access infrastructures. Many
service providers and integrated access device vendors have stated their plans to use AAL2.
· We continue to believe that a start-up such as Tachion cannot internally develop all of the
functions necessary to support a rich portfolio of voice services. Tachion has already
announced its partnership in Telecom Technologies, Inc.'s INIP partners program. Tachion's
support of MGCP would facilitate operation with TTI's softswitch and furnish access to
another set of voice services.
Competitor Actions:
Tachion's customer win of TelePacific should have a moderate to high impact on the overall
convergence industry, and we suggest competitors consider the following:
· We expect more rounds of price reductions from Lucent and Nortel for their switches, the
5-ESS and DMS, respectively, as they seek to make decisions to use new products from start-up
companies more difficult. Although they will not match Tachion's prices, they will lower
prices to help position new service platforms as a risky proposition.
· Mediation vendors that are developing their own softswitch capabilities, such as Unisphere,
Cisco, and possibly Tellabs/Salix, need to accelerate their developments and publicize any
customer trials. These vendors cannot afford the perception of being behind in this rapidly
emerging market.
· Mediation vendors that are depending on softswitch developers and/or partners to add
service functionality via their open APIs need to accelerate those partnerships. These
vendors face the task of delivering their multi-vendor solutions in a timely fashion and also
demonstrating they are interoperable.
· The larger competitors, especially Lucent, Nortel, Cisco, Unisphere, and now Tellabs/Salix,
will feature their large service and support organizations and suggest that a start-up
company like Tachion cannot provide the depth of support or the geographical coverage needed
by service providers.
Target Markets: Service Providers
User Actions:
We are taking a positive position on Tachion's customer win, and we feel that it will have a
moderate to high impact on the overall convergence market. We suggest service providers
consider the following actions:
· Service providers should insist on a detailed list of voice services and the timetables for
their support. In addition, service providers need to be comfortable that Tachion will add
AAL2 switching and DSP capabilities to the FUSION 5000 for echo control, silence suppression,
and jitter accommodation.
· Service providers considering the FUSION 5000 should insist on knowing which voice service
functions will be provided by third-party partners and how those functions will be supported.
Service providers need a single source of support that it is responsible for the total
solution, including any partner-developed software functions using Tachion's API.
BACKGROUND INFORMATION:
REPORT ID: 200117-0002-01.NV
EVENT: Tachion Wins Contract with TelePacific Communications
REPORT TYPE: Competitive Intelligence Report
TYPE OF EVENT: Corporate/Financial
VENDORS: Tachion Networks
COMPETITORS: Cisco, Unisphere, Tellabs/Salix, Sonus, Lucent, Nortel, Tachion, Taqua
MARKET SEGMENT: Voice Systems
TECHNOLOGY: Switching (WAN), Voice
TARGET MARKETS: Service Providers
DATE OF EVENT: January 17, 2000
DATE OF ANALYSIS: January 17, 2000
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