These three companies are among a handful of startups that think they can apply their IP networking expertise to the wireless market and, based on past successes, it's likely their contributions will be well received.

More than just a few recent "wired" telecom bankruptcies can trace the origins of their pain to the rise of monthly, unlimited Internet subscriptions. This resulted from a highly seductive war to win new subscribers. "Rolling out data services, they did not have a viable, long-term business model," says David Helfrich, managing general partner at ComVentures in Palo Alto, CA (and a P-Com board member). "During this era they also had cheap, if not free, capital to build the infrastructure," he continues. "That game is over."

More Than a Bit Pipe
Why is this important? It's simple really. 2.5G and 3G access to data services will be governed by some sort of billing system where users are charged relative to their degree of network use. If we are ever to see the so-called 4G networks and their promise of true broadband mobility ("Star Trek technology 400 years early" in the words of Brave New Unwired World author, Alex Lightman), then the mobile operators will have to find a way to make data services not only compelling and marketable, but profitable.

In the wireless industry there hasn't been a clearly celebrated school of RF-centric thinking (Airheads?) since the marketplace has been blessed with a usage-based billing model from the beginning. As advanced wireless data services begin to find subscribers, "the IP backbone infrastructure must provide more than 'bit-pipe' functionality," says Philip Marshall, an analyst with the Yankee Group. More important, "wireless operators must implement suitable infrastructure and organizational structures to ensure that they remain at the center of the 'value flows' to their subscribers."

Yuval Shahar is a veteran of the IP evolution revolution and P-Cube is his most recent endeavor, in which he serves as president and CEO. Prior to cofounding P-Cube, his contributions and leadership at Web appliance vendor InfoGear Technology and at metro IP networking startup Pentacom Ltd. (which he cofounded) eventually resulted in both companies being acquired by Cisco Systems.

Shahar cofounded P-Cube in 1999, along with former Pentacom CEO Benny Schnaider, to help service providers engineer their transport and access networks according to the actual services or applications that are carried by it. To date, the company has filed nearly 20 patents on its silicon and software architecture. While the company wasn't created strictly to serve the wireless market, its IP service engineering product and focus on identifying transactions and application flows within a given network has begun to attract the attention of the wireless world.

At the CTIA wireless show in March, they announced a partnership with Ericsson that could accelerate the adoption of broadband, GPRS, and CDMA data services. Ericsson contributes its leading-edge content rating, IP mediation and business intelligence modules, and P-Cube delivers its IP service engineering solution. Not unlike P-Cube's vision for wireline networks, the Ericsson partnership should allow mobile operators to establish sophisticated revenue logistics for different customer segments and provide feature-rich content for new applications.

Shahar believes that "wireless data networks must be overlaid with subscriber and application-aware network elements" in order to meet three requirements of the wireless data network: "The granularity to track, meter, and enforce all relevant application, subscriber, and network parameters; the flexibility to be programmed for a variety of IP-based services and billing scenarios; and the scalability to support millions of concurrent transactions and online users.

"Focused on profitability rather than market share," continues Shahar, "[wireless carriers will want to implement a system] that can deliver high margin application services to a customer base that is already accustomed to selecting from a wide variety of usage-based subscription plans."

On the Edge
It's a common perception that a greater and greater portion of wireless service revenue will come from mobile data services and content. Wireless operators will have the ability to control the "edge" of the IP network and, with the right tools, can maintain a high position in the value chain. According to the Yankee Group's Marshall, they can "derive value from the content by conducting real-time interrogation of packet data and aggregating this information for the purposes of advanced services."

"Applications drive traffic, and traffic drives revenue," says Tahoe Networks cofounder and CEO Anthony Alles. "Mobile operators must adhere to the lessons of broadband, but can't be trapped into thinking they have to pick and own the killer applications that transit their networks," he adds.

Alles and Arthur Lin have partnered again, at Tahoe Networks. Lin serves as the president and CTO at the San Jose-based company, which also operates out of Tampere, Finland. They both served in executive management positions within the IP services business unit at Nortel after their previous venture, Shasta Networks, was acquired by the company. Shasta built products that allowed service providers to deliver profitable network-based IP services over broadband networks.

By January 2001, they had identified the next market awaiting a solution: the point in the mobile data network where subscribers are aggregated from the radio access network and into the core IP backbone of the Internet. They called this crossroads the Mobile Internet Edge (MIE). Alles describes it as "the fulcrum of a new data business model for carriers, where for the first time in the history of data networking, carriers can monetize traffic and not just provide commodity access and transport services." The Yankee Group's Marshall says that the new world mobile network must "include both content and subscriber information," and that this functionality must be integrated with "subscriber profile information, both legacy and advanced billing systems, and middleware platforms and applications."

Megisto Systems is building infrastructure solutions for this mobile data network core, which the company says is the critical point where IP services are delivered to mobile subscribers. Megisto believes that a "subscriber and service-aware core" employing its Mobile Internet Service Gateway will help operators create, deliver, and charge for personalized, value-added services. Additional validation arrived when Reed Hundt, former chairman of the Federal Communications Commission (FCC), joined their board of directors in April.

Gordon Saussy, Megisto's president and CEO, and Carol Politi, its vice president of marketing, found success at Torrent Networking Corporation in the late '90s while productizing high-capacity "edge" routers for the emerging (wireline) IP services industry. The Torrent product was designed to aggregate and deliver QoS (Quality of Service) in IP networks and to allow IP transport over ATM - problems that vexed telcos at the time. Both Saussy and Politi were retained by Ericsson after it purchased Torrent in 1999. As vice presidents within Ericsson's IP Infrastructure Division and among the resident IP experts on staff, they were often brought into discussions concerning Ericsson's wireless product groups. As Politi describes it, "We were brought face-to-face with the problems on the horizon for the wireless industry."

Although not so long ago, the founders of all three companies were formulating their next career moves just as the first generation of wireless core networks was being planned, discussed, and debated. Many times, successful entrepreneurs recognize the "hole in the market" before the rest of us do. And with the confidence gained from their previous ventures, it's no wonder they made the leap into this formative sector.

Each of these startups' management and engineering teams are loaded with both wireless and IP expertise. Most interesting is that their founders seemingly jumped right out of successful company-building exercises in the wired telecom world, and into companies with a focus on wireless. The founders of P-Com, Tahoe, and Megisto cashed in when the companies they previously helped build were acquired by Cisco, Nortel, and Ericsson, respectively.

They could have walked off into the sunset. They could have become VCs themselves (a common career path during the acquisition frenzies of 1998-2000). But instead they chose to pursue the application-aware path that was missing from the mobile operators' roadmap as they arrived at a new "inflection point." They aren't alone. Another impressively credentialed startup in this area is WaterCove Networks of Chelmsford, MA. They have $50 million of their own, a seasoned management team, and a Mobile Data Service System that hit the market in February.

So, as consumers of future wireless data content and information, we may one day be thankful that the netheads who founded P-Cube, Tahoe Networks, and Megisto Systems didn't retire their data-centric expertise to a tropical island somewhere. At some point they will undoubtedly require the distribution and systems integration partnership of larger organizations (on the scale of those that bought out their previous companies). Stay tuned.

SIDEBAR
From the Time Capsule

If any or all of these companies are able to accomplish what they are setting out to do, we may see similar acquisition announcements in the future, perhaps involving the same buyers.