JDSU--Ottawa connects through fiber optics
September 12, 2000
by Rex Crum
Peter Scovell, chief executive officer and president of Zenastra Photonics Inc., says that when he walks around the city where he has lived for the last 12, years he sometimes has a difficult time recognizing its one-time familiar digs. The reasons why are familiar to anyone familiar with the booming telecommunications and venture capital markets.
"We're in a hot space where if we build it, we can sell it," Scovell said. "If you look at venture capital, that's not been high in past years, but the turnaround has been humongous."
While Scovell could be describing any of the dozens of small cities in Silicon Valley, North Carolina's Research Triangle or the Seattle suburbs that feed off Microsoft's (MSFT) growth, he is not talking about any city in the U.S. at all.
Rather, Scovell's experience is taking place in Ottawa, Canada's capital city. His 19-month-old company makes fiber-optic components such as switches for high-capacity telecom networks; a market, which RHK Inc. estimates, will reach $25 billion by 2003.
And if the old real estate axiom about location being everything, then Ottawa has quietly and quickly become one of the places to be in the fiber-optic industry.
With a population of around 700,000, Ottawa is slightly smaller than San Francisco. Throughout the 1970s and well into the 1980s, the Canadian government was the city's largest employer. But three events in recent years have led to a shift in the city's employment makeup.
Government downsizing
In the mid-1990s, the Canadian government began downsizing some of its operations, thus creating a larger labor pool in the Ottawa region. The emergence of JDS Uniphase (JDSU) -- which maintains headquarters in nearby Nepean as well as in San Jose, Calif. -- helped spur the growth of the fiber-optic market. And as alumni from JDS and Brampton, Ontario-based Nortel Networks (NT) began to strike out on their own, record levels of venture capital have found their way into the coffers of hundreds of high-tech startups.
"There's been huge growth in the last two years in particular," says Brendan Hawley, vice president of marketing at the Ottawa Economic Development Corporation, a business organization charged with encouraging business growth in the city. "This year we're looking at $10 billion worth of sales from the high-tech community."
According to Hawley, the emergence of Ottawa's fiber-optic industry is at the root of the city's growing high-tech community. The OEDC estimates that out of approximately 1,000 high-tech companies in Ottawa -- employing nearly 70,000 people -- at least 100 are in the fiber-optic market.
"There's a talent base and capital here that make this an emerging market," says Kevin Rankin, chief executive officer and chairman of Tropic Networks, a maker of optical networking systems for service providers. "It's resulted in this local spinoff phenomenon."
Typical trajectory
Rankin's own professional experience almost reads like blueprint of Ottawa's upstart fiber-optic industry. A former sales and management official with Nortel, LSI Logic (LSI) and then Newbridge Networks, Rankin left Newbridge around the time it was bought by Paris-based optical equipment provider Alcatel (ALA) and co-founded Tropic in May. The company secured $10 million in venture capital that was led by Ottawa's Celtic House and Boston's Kodiak Venture Partners.
"What started as an untapped talent pool has now been discovered by investors and you can see that in the amount of capital that has come here," Rankin said.
That amount of investment has been growing at a rate that is rapid even by the radical standards of the Internet economy. According to the Canadian Venture Capital Association, VC funding in Ottawa-area companies increased from $159 million in the first quarter of this year to $240 million in the second quarter. The CVCA estimates that Ottawa companies brought in only $149 million for all of 1999.
Among those getting a good-sized chunk of the VC dollars are the young fiber-optic firms. In addition to Tropic's $10 million, Scovell's Zenastra landed $40 million in funding in August, AcceLight Networks has $18 million in VC cash and OZ Optics recently secured $25 million in funding.
Sensible synergy
Maribel Lopez, an analyst with Forrester Research (FORR), says what's going on in Ottawa makes perfect sense, based on the conditions in the area.
"These types of companies tend to cluster in certain areas," Lopez said. "And the chances are good that a lot of these guys are from Nortel and got an idea they couldn't work on there so they struck out on their own."
"It's all because of this drive for higher speeds," says Hamid Hatami-Hanza, founder, CEO and president of Tellamon Photonic Networks, and a founder of Zenastra. "Everything starts from that, and money."
Hatami-Hanza's company, which recently closed a $31 million round of venture capital, is working on optical technology to speed data delivery of so-called long-haul and metro markets. He says that what is encouraging to fiber-optic entrepreneurs in Ottawa are that the network capacity needs of service providers are increasing, and potential customers like Lucent Technologies (LU) and Cisco Systems (CSCO) are looking for anything that will help their own products run faster.
"You've got all this bandwidth, but you still need the capacity to make it really efficient," Hatami-Hanza said. "We've got to keep going to new levels and come up with different things." |
