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Santera looks to IOCs for business

Switiching company Santera is looking for business at smaller companies.

Santera says it has intensified its emphasis on the independent operating companies – the small telcos operating outside of large U.S. metro markets – as incumbent carriers take their time making decisions on packet-based Class 5 switches.

Rivals contend, however, that the company is belatedly turning to this market to offset the loss of at least one deal at Sprint to Nortel. Layoffs, involving about 70 people, do suggest a change in Santera's business conditions.


Santera, founded by serial entrepreneur Wu-fu Chen, is certainly the most generously funded next-generation telco switch startup. The company has raised $200 million since 1998, with the most recent round amounting $110 million a year ago.

The impetus for the rumblings around Santera shifting focus to the independent operating companies is based on recent developments at the company. Last month, it laid off about 50 people across the board, reducing its head count to roughly 230 employees. Vice president of sales Charlie Vogt left in May to become chief executive officer at Taqua. But the announcement that the company had signed a deal with a small Ohio-based telco and was in the process of completing a rural utilities service (RUS) at a tiny carrier in California, by Santera's own admission, "threw people." RUS is a federal service that provides low-interest financing for telcos in rural areas of the U.S.


Santera clearly has had to respond to the protracted sales cycles at incumbent carriers, where its gear has been in lab trials at Sprint, SBC, Verizon and Qwest. Bankruptcies at potential customers WorldCom and Williams Communications haven't helped matters either. It is perfectly logical that it would step up efforts with the independent operating companies (IOCs) now that the sales cycle has stretched to three years in some cases, according to Santera, from its expectations of 18 months. IOCs typically have shorter sales cycles, and as rivals Taqua and Telica have realized, offer a steady source of revenue in the absence of any commitment from the incumbents. Plus, deployments at some of the larger IOCs is an important validation for Santera's technology.

Industry sources offer a different version of events: having lost out to Nortel for a Class 5 replacement at Sprint's long distance network, Santera has reassessed its chances of penetrating the incumbents and followed the lead of Taqua and Telica in concentrating entirely on the IOC market. The company had bet too much on a deal materializing with an incumbent, and now is scrambling to establish itself in the IOC market, rivals charge. Santera says that its multiple lab trials are still in progress, and although none has yet progressed to field trials, there hasn't been any change in the number of trials. Also, Santera had signed a deal with TDS, one of the largest IOCs, suggesting that the focus on IOCs wasn't a hasty decision. The deal with TDS for now involves only Internet offload and not Class 5 services, although it will eventually cover Class 5. The truth probably lies somewhere between Santera's story and that of its rivals.


There is another point of contention, though. Santera leads the industry in terms of density – the number of ports that its switch can handle – which is a major selling point with incumbents but not a great attraction for IOCs with smaller line counts. Santera believes that price/performance isn't the only issue for carriers, implying that are there are cheaper alternatives to its switch, and touts the fact that its switch offers combined Class 4 (trunking) and Class 5 capabilities and the ability to handle video and voice over DSL.

Taqua, which last year shifted its focus to IOCs after being resuscitated by a recapitalization round, only has a TDM interface on its switch, Santera notes. Taqua plans to introduce a packet interface on its switch at the end of the year, but believes there's little demand in the IOC market for a packet interface at the moment. The volume of calls doesn't justify upgrading to an IP infrastructure, the company argues. It is possible that larger IOCs like Century Telecom and Allegiance Telecom will eventually upgrade, but Taqua is betting it won't happen for a while. Also, Taqua believes its ability to terminate copper lines and its "switch on a card" – a line card with Class 5 features built in – are significant advantages in smaller deployments.


Santera contends primarily with Nortel and Sonus in the battle for business at incumbents, with Alcatel featuring in some of its trials as well. Apart from its density, Santera is generally recognized to have the best box, but incumbent vendors can argue they have an advantage in terms of OSS integration at the larger telcos. In the IOC market, Taqua, Telica and Convergent are already active. Gluon, which raised $50 million in January, is also aiming its box at the IOC market and has the ability to terminate copper lines. SentitO, started by former Salix executives, is looking for funding at the moment for its switch that would also terminate copper lines, a feature best suited for the IOC market. HR> the451 ( is an analyst firm that provides timely, detailed and independent analysis of news in technology, communications and media. To evaluate the service click here.

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