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By
Laurie
Falconer
Sometimes
having an "all or nothing" attitude means taking small
steps. And sometimes big steps are actually small steps. Sound confusing?
Not for Zhone Technologies, well-known in the telecommunications
equipment industry for launching the company in a big way, yet keeping
under wraps exactly what it was doing.
Now what it was doing is not such a big secret any more. And what
it was doing was helping carriers take small steps towards integration
of narrowband and broadband technologies.
"It's all about incremental change," says Jeanette Symons,
Founder, CTO and VP of Engineering, Zhone Technologies. "Carriers
are not interested in making forklift changes to their access infrastructures
to add broadband services to the access network. They want small,
incremental steps and we make that possible."
This philosophy of helping carriers make incremental changes carries
throughout the company, according to Mory Ejabat, Founder, Chairman
and CEO. "While we are focused only on the access network (from
the customer location to the telephone company's central office),
we are incrementally adding to Zhone's technical innovation and
expertise through acquisition."
In fact, Zhone has acquired seven companies in the past two and
a half years, which may seem excessive in some cases, but for Zhone
with its "all or nothing" philosophy (along with $500
million in funding), this appears to work well.
 The
Story of Jeanette and Mory
The success of this team has been well-documented. Symons, a California
native, received her B.S. in Systems Engineering from UCLA and after
a stint at Hayes Microcomputer managing ISDN modem programs, obtained
an opportunity to start a company called Ascend Communications with
two other founders in 1989.
Ejabat, who moved from Iran to the U.S. in 1976 and received his
BSIE and his MS in systems engineering from California State University
at Northridge, and later an MBA from Pepperdine University, joined
the team of Ascend in 1990.
Together Symons and Ejabat grew the company, a global leader in
building carrier and ISP networks, from $40 million in annual revenue
to $2.3 billion by the end of 1998. In 1999, the company was sold
to Lucent Technologies for $24 billion. At its height, Ascend Communications
was so successful that 80% of all the traffic on the Internet was
carried on networks built with Ascend products.
Regarding why the team of Ejabat and Symons has had such a run of
success, Symons said, "Mory has an excellent sense of balance
between the various disciplines in the company, focusing on customers
and execution. Meanwhile, I really focus on delivery of the products
to the customers to meet the demands. It is a good balance between
us."
Acquisitions for Almost Everything
Each acquisition had a unique, incremental purpose for expanding
Zhone's product capabilities. For example, Zhone's most recent acquisition
provided it with IP-based customer premises equipment which fits
well into the Zhone product portfolio. Below is a listing of each
acquisition and
what it brought to Zhone:
• Vpacket Communications - IP-based customer
premises equipment featuring advanced voice over Internet protocol
(VoIP) quality of service (QoS) capabilities and high-speed Ethernet
interfaces
• Nortel Networks AccessNode Universal Edge 9000
Product Line - multi-fabric, high-density, integrated
access platform providing narrowband and broadband services
• Xybridge Technologies - broadband wireless
mobile network softswitch offering carrier-grade scalability and
reliability
• Optaphone Systems - cost-effective wireless,
short-haul and "last mile" solutions for public, private,
and government networks
• Roundview - engineering firm specializing
in software for Internet networking technologies with a focus
on enhancing IP data logic
• CAG Technologies - developing, manufacturing
and supplying telecommunications subsystems and assemblies
• Premisys Communications - integrated
access solutions for premises-based platforms that integrate voice,
data and video services
With the acquisitions along with the team of engineers led by Symons,
Zhone has developed a well-rounded family of products to compete
in a field riddled with major equipment manufacturers as competitors.
Zhone intends, in its "all or nothing" style, to steal
customers from companies like Alcatel and Advanced Fibre Communications
(AFC), starting with AFC through marketing of its access node and
next generation digital loop carriers (NGDLC) products.
"Our access node products, led primarily with our DLCs, are
for carriers incrementally offering new telephone services - this
is the carriers' 'bread and butter' revenue," said Symons.
"DLC product sales equate to about two-thirds of our access
node revenues."
The remaining one-third of the access node revenues come from the
NGDLC product line, the Single-Line Multi-Service (SLMS) network
equipment, which provides carriers a way to incrementally add voice,
video and data services to their offerings.
"The key is to provide carriers with products that support
their needs now and in the future," said Ejabat. "That
way the customers can evolve their service offerings without forklift
upgrades in infrastructure."
Zhone competes on a number of additional aspects, including operational
expense reduction for carriers and multi-service functionality in
one architecture. According to Ejabat, carriers can reduce operational
expenses by up to 60% while integrating wireless, cable, DSL broadband
and narrowband services.
Zhone Technologies Products
Access & Transport Equipment
• AccessNode Universal Edge 9000
• Arca-DACS 100 Digital Access Cross-Connect System
• BAN - Broadband Access Node
• IMACS (Integrated Multiple Access Communications Server)
- Access Server
• MALC (Multi-Access Line Concentrator) - Access Concentrator
• Sechtor 100A Voice Gateway
• Sechtor 300 GR-303 Voice
Concentrator Customer
Premises Equipment
• Z-Edge 64 Integrated Access Device
• Z-Edge 6100 Voice/Data Router
Network Architecture
• SLMS Single Line Multi-Service
Network Architecture
Management System
• ZMS (Zhone Management System)
 Customers
Going the Zhone Way
With more than 200 customers, Zhone has been successful marketing
its incremental approach to access infrastructure. According to
Ejabat, about 75% of Zhone's revenues are from carriers in North
America - carriers such as Qwest, Verizon, AT&T and Bell Canada.
Even so, Zhone does not limit itself to the North American markets,
which is likely to be a wise decision given today's U.S. telecommunications
market and the difficulties it has seen. "We'll go anywhere
there is an opportunity," said Ejabat.
As proof of that, Zhone recently announced sealing a deal with Ericsson
to distribute Zhone's access products to its customers. And subsequently,
Ericsson announced a significant deal with British Telecom (BT),
the major telephone company in Great Britain, which would place
Zhone's products into BT's access networks. "Because of this
deal, BT's access network will be 100% Zhone," said Symons.
Financially Speaking
From the beginning, Zhone appears to either be making all the right
decisions, be very lucky, or both. Ejabat and Symons, playing on
their earlier success, were able to raise $500 million from investors.
This large investment has helped Zhone to acquire the companies
it needs to be competitive, and now Ejabat expects the company will
turn profitable in Q302.
The company has had its share of difficulties due to the troubled
economic conditions particularly in the U.S., however. Zhone had
to trim its workforce back from 800 down to 250 employees.
"It's all about survival in this economy," said Symons.
"We had to consolidate in order to ensure survival."
Asked when to expect a recovery from the economic slump, both founders
give similar answers, but Ejabat said it best: "The economy
has to turn around first; telecommunications usually lags the economy
by six to nine months. I think we'll see a little improvement in
the second half of 2003 with full recovery in 2004."
Will the company ever go public?
"Yes, we're ready to go public when conditions make it more
comfortable to do so," said Symons. For now the Zhone team
can enjoy its success without the harsh spotlight placed on public
companies these days.
Zhone Investors
• Kohlberg Kravis Roberts & Co. - KKR
(www.kkr.com)
is an investment firm specializing in private equity transactions.
Since its founding in 1976, KKR has invested in excess of $13.5
billion of equity in more than 80 transactions with a total value
of $96 billion across more than 25 different industries.
• Texas Pacific Group - Texas Pacific Group,
Inc. (TPG), based in San Francisco, California and Forth Worth,
Texas, is a private equity investment fund managing in excess
of $7 billion. TPG is the lead equity investor in more than 20
companies, including Beringer Wine Estates, Del Monte Foods, Oxford
Health Plans, Inc., Paradyne Networks, Inc., America West Airlines,
Zilog, Inc., Ducati Motorcycles, S.P.A., J. Crew Group, Inc.,
ON Semiconductors, and Bally. In addition TPG serves as a control
shareholder of Newbridge Latin America and Newbridge Asia, regional
private equity funds managing in excess of $800 million.
• New Enterprise Associates - For more
than 20 years, NEA (www.nea.com)
has invested in early-stage companies, working with management
to nurture and build companies of real and lasting value. With
$2.5 billion in capital under management, NEA has invested in
more than 400 companies, of which more than 130 have gone public
and more than 140 have been successfully acquired.
The Zhone Way the Right Way?
Is the Zhone way the right way? It is hard to say. When asked if
she thinks she and Ejabat would have had such an "easy"
time raising money and starting Zhone if they were starting in 2002,
Symons said it is a mixed answer. "Developing technology is
easier during a time when carriers aren't as progressive in their
investing in new types of technology - it gives the company the
space and time needed to focus on developing technology right. On
the other hand, it is very difficult in times like these to raise
money."
Regardless, Zhone seems to be doing things the right way - with
profitability around the corner and a well-rounded line of products,
Zhone has made incremental steps an "all-or-nothing" success.
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