BigBand: Triple player

The company has technological superiority, and higher sales than any other Israeli start-up, but it won’t get to Nasdaq without a sizeable profit.

BigBand Networks was only just edged out for the title of most promising start-up in 2005, and was the first choice of many in the survey that awarded the title.

One of the factors that makes BigBand so promising is its excellent positioning in the hot market competing for household living rooms. This competition is forcing all communications providers to offer all-inclusive packages for cable, satellite, DSL, and fiber to the home (FTTH) infrastructure.

Today’s home consumers want a single pipeline that will bring all communications services to their homes: telephony, television, Internet, etc. Today’s content providers are fighting tooth and nail to bring as much information as possible to our living rooms without having to replace copper cable wires and deal with the expensive problem of the last mile. They’re trying to do all that without wasting too many broadband resources.

This competition is forcing the providers to find as efficient a platform as possible for creating more and more value added services, and BigBand develops just such a solution a triple play platform for transmitting video, voice, and data services, composed of a router and software solutions. BigBand’s current platform originated in the video field, where the company started, and video is still the most important element in this triangle. You may get away with losing a little information in voice transmission, but there’s no room for compromise on video quality.

BigBand competitors Cisco Systems (Nasdaq: CSCO) and Juniper Networks (Nasdaq: JNPR) offer routers with good voice and data communications quality, while Terayon Communications Systems (Nasdaq: TERN) and Motorola (NYSE: MOT) offer video solutions. BigBand provides all three components together; its technology is one year ahead of all its competitors. Even if Cisco acquires companies to close this technology gap, it will still have to undergo a lengthy process of assimilating the technology.

BigBand is expected to finish 2005 with revenue of $100-120 million, more than any other Israeli start-up. For the meantime, however, BigBand’s impressive revenue figures have not been translated into a successful bottom line. As far as is known, the company is around the break-even point. Sources close to the company say that it burned large amounts of cash over the past year consolidating the IP cable division acquired from ADC Telecommunications (Nasdasq: ADCT) in 2004 for several tens of millions of dollars. This acquisition was designed to expand BigBand’s business in voice and data communications, in addition to its video activity. The acquisition also doubled BigBand’s revenue, as well as its staff, which now stands at 350.

The company’s bottom line is the reason why BigBand has not yet made it to the primary market. Besides heavy R&D expenses, the reason for its miniscule or non-existent profits lies in the large sums that the company has had to spend on projects recently undertaken, including contracts with Cox Communications, the Chinese television and radio network, a Swiss cable company, and others.

Judging by the stubborn refusal of its pair of entrepreneur-managers to grant an interview about business matters on BigBand’s agenda in the near future, the company seems to be already deeply involved in its IPO proceedings, and fears complications with the US Securities and Exchange Commission (SEC) before its issue. They probably are afraid of the SEC, and they can’t be blamed for that.

It all began in Finland

President and CEO Amir Bassan-Eskenazi (not shopping.com co-founder Amir Ashkenazi) and executive VP and CTO Ran Oz founded BigBand. They met in Finland, while Bassan-Eskenazi was working at Nokia (NYSE, LSE, HEX: NOK), and Oz was working at Sonera Corporation (HEX: SRA; Nasdaq: SNRA), Finland’s leading telephone company. They met again in Israel several years later, when Bassan-Eskenzi became COO at Optibase (Nasdaq: OBAS), which Oz founded with a team of entrepreneurs. They founded BigBand in 1999.

Gaining entry into the market in which BigBand operates was no easy task. Entry barriers are in the tens of millions of dollars, and Bassan-Eskenazi and Oz raised no less than $100 million in order to enter this market. The company has a broad range of financial and strategic investors, including Evergreen Venture Partners, Star Ventures, Cedar Fund, Lauder Partners, Charles River Ventures, Pilot House Ventures, and private investors.

BigBand’s flagship product is the broadband multimedia-service router (BMR), which makes it possible to provide all three services to televisions with converters or modems. The router improves image quality, and accommodates high definition television (HDTV), voice over Internet protocol (VoIP), video on demand (VOD), and other services. All these solutions have a single goal to increase revenue from value added services for content providers, while relying on the existing communications infrastructures in households.

In general, BigBand’s solutions can be divided into two groups: hardware-based optimization solutions that can be used to transmit as many data as possible on existing infrastructures through optimal use of bandwidth, and software solutions, which make it possible to provide value added services through applications developed by BigBand. These solutions enable communications providers to increase their revenue through advertising broadcasts on demand, for example. This means that people watching “Sex and the City” in New York can watch completely different ads from those seen by those watching the program in Los Angeles.

One of the innovations pioneered by BigBand through the use of its platform is switched broadcasts. For example, take a US cable provider that enables its subscribers to watch 150 channels. Despite this wide variety of channels, there is a demand in certain states to watch only 50 channels. BigBand’s router makes it possible to broadcast only the desired channels, thereby freeing bandwidth for other uses.

When will we see BigBand on Nasdaq? It probably won’t take too long, but it depends to a large extent on the company’s ability to streamline and report a significant profit. Wall Street investors won’t accept a money-losing communications equipment maker, even if it boasts a breathtaking growth rate.

Published by Globes [online] - www.globes.co.il - on September 15, 2005

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