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Telecom companies put tiny tech on hold

Start-ups are calling for a revolution in the telecommunications sector, according to venture capitalists in the industry. But no one is listening.

Now that he's trying to get his own start-up off the ground, Barry Weinbaum has come to rue his days as vice president of Lucent Technologies' Optical Networking Group.

In the heyday of the telecom explosion, Weinbaum and other executives at equipment makers like Lucent were buying up components right and left--unknowingly doing lasting damage by creating an incredible surplus of inventory.

"I've never seen so many people be so wrong--we were buying according to projections, not demand," said Weinbaum, now chief executive at NanoOpto, a maker of optical networking components.

Now the buildup of huge stockpiles, a sectorwide cash crunch and the carriers' interest in protecting their current networks are all creating a poisonous atmosphere for start-ups certain that new communications components created through nanotechnology could transform the ailing communications sector.

"Micro and nanoscale technology have huge potential to impact the industry, but they haven't had that impact yet because of the vested interests of incumbent players," said Charles Gerlach from the IBM Institute for Business Value.

"Several of these companies are ready to go and have products," but that doesn't mean the market is ready to absorb it, he said. Even as carriers have started to slowly open their wallets, they're reluctant to spend money on anything that isn't focused on reducing costs.

Analysts estimate that there are roughly 900 start-ups making micro or nanoscale technologies for the telecommunications sector, but very few of the start-ups get attention.

"One of the hundreds of start-ups out there may have the best solution. But if you've eaten five bags of M&Ms you reach a point where you don't want even one more M&M no matter how good that M&M is," said Josh Wolfe, managing partner of venture capital firm Lux Capital, referring to the ongoing ramifications of the inventory glut.

Playing it safe
The communications sector is still deeply wounded by the meltdown of 2001, when stocks plummeted and virtually every company faced huge revenue shortfalls and write-downs of assets. The fallout from that, and the lack of solid clues about any potential recovery, have most companies buttoning up their pocketbooks and putting what little money they're spending toward simply maintaining what they have instead of investing in new technology.

For example, optical equipment maker Ciena, which sells to big carriers like Sprint and AT&T, is only selectively using some of the new nanotechnology available.

"In some places, we could use the technologies more if they became cheaper," said Jeff Livas, vice president of systems technology at Ciena.

AT&T spokesperson Dave Johnson said that the company keeps a close eye on developing technologies, and it has a team of about half a dozen people who work with start-ups.

"But we're more interested in meeting customer demands than having bragging rights to being the first to implement some new technology," he said, adding that the "if we build it, they will come" approach was the cause of many bankruptcies.

Entrepreneurs, however, say micro and nanoscale components for optical networking and wireless products can help companies out of the slump because they pack more power into a smaller scale and increase cost efficiency.

In optical networking, Weinbaum says his company has created a lithographic technology that can mass-produce nanoscale patterns on chips in order to create unique optical components. NanoOpto makes subwavelength optical elements (SOEs), which are just tens of nanometers long and can be grouped into high-density optical chips. NanoOpto makes the SOEs using nanoimprint lithography, which creates the extremely small patterns that give the SOEs their unique capabilities.

"It's a whole new quality of light," said Weinbaum, who compared it to the landmark shift from vacuum tubes to semiconductors in the computer industry.

NanoOpto, which came out of the research labs of Princeton University and the University of Minnesota, got its first round of funding just 15 months ago and announced its first product in March. But so far, the company hasn't signed up any customers.

Optical component company Corning said it is working in-house and with start-ups on new technology. Although the company has some products, it isn't going to move hastily.

"Carriers are in no rush for deployment," Corning spokesperson Paul Rogoski said. "The (capital expenses) spending downturn has dampened demand for new technologies overall."

Fitting in the new technology
Wireless handset makers like Motorola, Nokia and Ericsson have also suffered from inventory gluts, but the bigger problem is in integrating new technology.

There are already micro mechanical switches that could replace transistors in cell phones, according to Clark Nguyen, vice president of Discera. The devices, which use MEMS (microelectromechanical systems) technology, have a unique kind of receiver, which Nguyen refers to as a vibrating mechanical resonator.


Gartner analyst Peter Middleton says nanoscale optical technologies offer radical new possibilities in optical component design.

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He said it would give cell phones better frequency selectivity, allow them to tune in to the best possible frequency at any given moment and end some of the biggest problems with today's products: limited bandwidth and dropped calls. The company's ultimate aim is to integrate its devices with transistors and shrink a transistor so much that it can fit on a single silicon chip.

"This will apply to all phones, including those that use the most popular GSM (Global System for Mobile Communications) and CDMA (Code Division Multiple Access) standards," Nguyen said. "It will affect your stereo and TV. This has a large volume of applications."

Aside from better frequency selection, the technology should give cell phones longer battery life and could let networks have more customers. Devices could become smaller, too.

Nguyen said nanotechnology developments in optical networking components are promising because they are fundamental technologies.

"Carbon nanotubes are vibrating resonator devices--these are building-block-type products. You can connect carbon nanotubes into larger circuits, just like you could with transistors," he said.

That makes the state of today's technology similar that of transistors in the 1960s, he said. Nothing happened with the development until transistors were later connected into integrated circuits, a computing revolution.

"With this technology, you can take a cell phone and shrink it to the size of a wristwatch or a ring," he said.

Among the limitations to the new technologies are addressing power needs and integrating the micro components with existing equipment.

"These technologies will be very disruptive," said Gerlach. "Right now you have European carriers spending billions to license spectrum. If a technology comes along that allows access to any spectrum, that undermines the whole investment," he said.

But such major changes are still a long ways off, as micro and nanotechnology start-ups have to first find a way to wriggle into the telecom industry.

"Even if your technology is disruptive, you can't just enter the market, you have to come in in a nondisruptive fashion," Weinbaum said.