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Orckit Communications


didn't succeed in creating value for its stockholders by spinning off

Tioga Technologies


, so it's try, try again, this time splitting itself in three.

Currently Tioga and Orckit's amalgamated market value is less than Orckit's $650 million worth before the split. Tioga closed Friday with a market cap of about $140 million, while Orckit's is about $170 million. There are no current plans to list the new companies.

Orckit is splitting its original activity, modems and digital data subscriber line systems, into one company focusing on DSL modems based on IP and frame relay protocols and another focusing on ATM-based modems.

The third company will come from an in-house start-up, already employing 70 engineers, to produce fiber-optic systems, a wholly new direction for the company. The product, still in development, will be marketed to competitive local exchange carriers, or Clecs. Estimates put Clecs' share of the market at 50% within three years, making them a serious threat to telcos.

The word is that Orckit will be knocking on venture capitalists' doors in Israel and abroad for money for the start-up. Considering how hot the whole area of fiber optics has become, the quest has good chances of success. Access to investors will be eased by Orckit board members Chemi Peres, a managing partner in

Polaris Venture Capital

, and Meir Barel, manager of

Star Ventures


It was Orckit's inability to compete against giants like

Cisco Systems





and even the Israeli

ECI Telecom


in the field of ATM-based modems that caused the company's value to implode.

Most major phone companies use ATM-based D-Slam modems. These are regarded as the best performer in terms of quality of service and billing interfaces. The Israeli company did win major contracts worth hundreds of millions of dollars with


, now merged into


, and

Deutsche Telekom

, but it still couldn't make a profit. The Deutsche Telekom contract was cancelled, for reasons that are unclear, although Orckit says it couldn't make enough money on the deal.

The permanence of the GTE deal is in doubt as well, because

Bell Atlantic

, the senior partner in the merged Verizon, bought its modems from



. Such ATM-based modems have been the core of Orckit's activity.

The start-up will be selling its IP- and frame relay-based modems to Clecs in Europe and the Far East. Here, it is hoped at Orckit, competition will be less fierce. One example is a $40 million contract with the Swedish


for IP-based modems.

The third company will also be supplying fast Internet service to college campuses through the Israeli company

EDSL Networks

, purchased in May, which specializes in communications for multitenant units. Sales are expected to reach $100 million this year and $150 million in 2001. EDSL has 45 employees and marketing and sales offices in McLean, Va.