Telecom Startup Thinks It Can Lick the Last-Mile Problem

Jul 16 2001

Curse that last-mile barrier. Go ahead. You'll feel better, and you'll be in good company.

The bottleneck of data on the "last mile" of copper phone lines connecting homes and businesses to fiber-optic networks has caused an epidemic of hair-pulling among everyone from network builders to Web surfers.

Everyone, that is, except a Fremont, Calif., startup called Actelis and its venture capital backers. Actelis may have come up with a solution to the last-mile problem: Its technology enables data to travel over copper lines at speeds as high as 155Mbps, comparable to fiber-optic networks.

Last week the company raised a $26 million third round of funding from Carlyle Venture Partners, New Enterprise Associates, Walden International and U.S. Venture Partners. In an increasingly rare feat in a tough market for telecom-network startups, Actelis raised the capital at a higher valuation than in its previous rounds.

For venture capitalists, finding a promising telecom play is getting tougher. Thanks to overinvestment in high-speed networks that may take years to pay off, the troubles facing telecom startups could stretch on for years. Even the more vaunted venture-backed telecom startups such as Corvis and Juniper are taking hits in the stock market.

For a while, data networks offered an island of stability for tech-oriented VCs, but many are rethinking their commitment to the sector. It takes a company with a unique approach to draw VC attention toward telecom. Actelis' backers think the company is the real thing.

Actelis overcame a longstanding problem of cross-talk, the interference caused by transmitting such vast amounts of data over copper wire with low capacity - interference that leads to high error rates in the data. "We get around this using spatial division multiplexing," says CEO Yuval Baron, explaining that the company has developed an algorithm that allows for error correction, letting high amounts of traffic to pass over copper wires without a problem.

Actelis plans to target carriers in second- and third-tier markets, where it could take businesses years to get a fiber connection. According to a study by Morgan Stanley Dean Witter, the majority of U.S. businesses will still not have access via fiber by 2009. And rather than sell to the new and recently beleaguered carriers such as Level 3 and Global Crossing, Actelis has targeted Baby Bells and local carriers, which still have money to spend.

Best of all, the company's solution doesn't require building massive new networks. "It is very appealing to carriers because it allows them to do more with less," says Anand Gowda, a principal at Carlyle Venture Partners.

Actelis' approach underscores a fundamental aspect of success forgotten during the exuberant days of the communications sector: Great technology isn't enough; someone has to want to pay you for it. The VCs behind Actelis are betting that that won't be a problem for this startup.