The Quantum Bridge Question: How Far Can Optical Mania Go? - TheStreet

Conditions permitting,

Quantum Bridge

is gearing up to push out the latest in a long line of IPOs by optical networking outfits.

Quantum's solution for last-mile bottlenecks doesn't pack the biggest bang for your bandwidth investment buck. But it trumps the capacity offered by digital subscriber line, or DSL, equipment, currently the preferred solution to the last-mile puzzle. And with an investing watchword, fiber optics, at the core of its technology, Quantum Bridge could easily ride the market's optical infatuation to a juicy valuation.

Timing, however, is key. Concerns about an equipment spending

slowdown due to a

cash squeeze among some network builders is starting to dim the heretofore brilliant outlook for optical networking investments. So companies like Quantum are feeling the pressure to go public now, before the opportunity's gone -- because this window may be closing more quickly than anyone realizes.

Interest

CEO Tony Zona and marketing director Jeff Gwynne were on Wall Street to talk to bankers last week when they dropped in on

TheStreet.com

for a chat. Zona said the company hadn't picked underwriters yet, but hinted there was no shortage of interest.

So when can we expect an IPO? "This year is mathematically possible," said Gwynne. But in all likelihood, the stock will debut in the first half of next year.

North Andover, Mass.-based Quantum Bridge makes optical gear that telephone and cable companies use to allocate bandwidth, or capacity, to a variety of users in a building or neighborhood. Quantum's gear speeds Net access cheaply, maximizing existing fiber capacity by splitting wavelengths. To keep a lid on costs, the company uses run-of-the-mill components to make its equipment.

While Quantum targets what's known as the last-mile bottleneck of the Internet, its equipment offers only a taste of the long-awaited high-speed access nirvana. And ultimately, that market may prove small and short-lived, given the tidal wave of bandwidth ahead.

Got a Job to Do

But Zona says that wave may not come ashore for another 10 years. Meanwhile, there's work to be done.

Last month, Quantum announced its first contract, a three-year, $50 million agreement to provide equipment to

Advanced Telcom Group

, a closely held local phone and Internet service provider based in Santa Rosa, Calif. Quantum says it also has its equipment in the testing stage with five phone companies. In April, the company finished a $102 million round of financing.

Cable companies, including

Comcast

(CMCSA) - Get Report

, which is a Quantum investor, are likely to be among the types of companies that would opt for the Quantum approach. Though consumer-focused, cable depends on fiber networks passing by small and midsize businesses that could easily and cheaply tap into the optical capacity nearby. And Quantum also holds out the possibility that taking fiber to homes could provide a broader market for its equipment.

Crowded House

Quantum is far from alone in its efforts to buck the current sky's-the-limit trend in fiber optics. Competitors include

Terawave

of Hayward, Calif.,

Alloptics

of Pleasanton, Calif., and

NEC Eluminant Technologies

, Herndon, Va. These outfits use what's called a passive optical networking approach, or PON, taking the existing fiber capacity and sharing it among users.

PON equipment makers sit at the low end of the fiber capacity continuum. As such, they aren't really comparable to the optical heavy hitters that have come public this year, such as

Corvis

(CORV) - Get Report

and

ONI

(ONIS)

.

As industry projections would have it, we will be a fiber-rich planet, and entire strands of fiber optic capacity will be available to those who want it. An abundance of fibers negates the need to share one fiber. Many start-ups concerned with the access side of optical networking, such as

Ocular Networks

, have focused on extending the vast capacities at the core of the Net further out toward the ends.

Terabeam

, for example, has captured the industry's

imagination for its promise to shoot optical-fiber-like Net access through the air on laser beams.

Thin Slice

Industry observers say Quantum addresses a market niche, at best. In other words, Quantum promises to deliver bushels of apples at a time when many established and emerging companies are planning to deliver whole orchards.

"The economics of scarcity is artificial," says David Isenberg, a telecommunications consultant and former

AT&T

scientist who runs

isen.com

. "If you can bring one fiber into a building, you can bring in 1,000 fibers for 5% more."

The point being, why divvy up one wavelength, when you can offer multiple wavelengths on multiple fibers?

"We are entering an age of abundance," says Isenberg. "We don't need this scarcity stuff."

The real question is whether Wall Street will hold out for abundance or focus on the current scarcity.