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Summary:

[qi:080] Darkstrand, a Chicago-based startup planning to commercialize the fiber network built as part of the National LambdaRail (NLR) project, is — like most of its telecom brethren — facing a rocky road. NLR is a federally funded network that connects about 30 universities across the […]

[qi:080] Darkstrand, a Chicago-based startup planning to commercialize the fiber network built as part of the National LambdaRail (NLR) project, is — like most of its telecom brethren — facing a rocky road. NLR is a federally funded network that connects about 30 universities across the country; Darkstrand won the rights to offer commercial services on it in May 2008. But the company, which needs to raise more capital to upgrade the NLR network in order to meet commercial needs, is being challenged by a moribund economy, which is turning sales cycles into the equivalent of the steep Alpine climbs that mark the Tour de France.

nullBack in October, Stacey spoke to the 3-year-old company’s CEO, Mike Stein, who told her that Darkstrand would need to shell out some $24 million in capital payments for the network, plus $2 million-$3 million a year to maintain it. Even more money would be needed, Stein said, to keep the company (and the network) growing. He affirmed as much during a conversation I had with him last week as well, adding that not only has the current economic environment made raising money a challenge, but it’s having an impact on the company’s valuation.

Darkstrand was attracting strong investor interest up until markets nosedived in the fall, said Stein, who estimates that it would need about $100 million to fully realize its dream of offering 80 Gbps service over the network. For now, however, Darkstrand is focusing on getting its commercial service launched on Jan. 31, 2009. It’s targeting large companies, such as movie production studios or geo-exploration giants, that would spend $100,000 a month or more on bandwidth. Customers like that would allow the company to raise new money when the time is right, Stein said. For now, he’s banking on its current investors to keep Darkstrand going.

Over the long term, his belief in the future of his business is well founded: The demand for bandwidth from different kinds of corporate applications is only going to increase. Despite the presence of a large number of competitors, the corporate market still needs a lightening rod. “We don’t want to be like another telco,” Stein said when I asked him how he’s going to stand out in a business that is prone to ever-declining prices and fraught with competitive risk. “We are looking to solve workflow problems for big corporations, and we see that network is a tool to solve those problems. It is what you can do with the network.”

With a roster of powerful advisers that include the former CEOs of Caterpillar and Monsanto, Stein has the right connections to land new accounts. That said, I’m not yet clear as to how Darkstrand will stand out from its rivals. As a company, it has a lot of challenges. For one, it’s basing its network on NLR, which is rumored to have reliability issues.

Many think the problems stem from the equipment used in NLR, most of which came from Cisco Systems, one of the network’s key backers. It’s said to be in need of major upgrades as its gear is a generation behind what’s used by commercial providers. I heard from some sources that when NLR and Internet2 were planning to merge, there was talk of ripping out the Cisco gear. Darkstrand executives said they were in close talks with Cisco to get newer gear and upgrade the networks, in addition to spending their own money on other types of equipment. If it gets them paying customers, it would be money well spent.

This article also appeared on Businessweek.com.

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  1. NLR is going to need hundreds of millions of greenbacks to get remotely competitive and offering 80Gps – these guys are dreaming!

    EMC is a hard company to replace and they have most of the studio’s and high bandwidth users already signed up or in their sights – and a lot of money in the bank.

    Ex CEO from Caterpillar – like he has a lot of Hollywood connections – right! Plow that by me again!

    I predict they will not meet their start up / launch date of Jan 31st 2009.

    Soapers

  2. @Soapers,

    Those are precisely my concerns about the company and their attempts to become relevant in the future. In many ways the Cisco gear is like a millstone around their neck.

    I think the ex CEO from Caterpillar can help them with well oil exploration companies or construction companies etc., because even those companies would need bandwidth. I think if you followed some of the trends in cad/cam space, the sizes of files being swapped between various parties are increasing exponentially and that is a big opportunity.

    But as you said, there are some really dark clouds over darkstrand.

  3. they also need to offer some differentiation to commercial wholesale providers and most importantly physical diversity. 80 gbps commercial service would do it from innovation perspective. However a conventional 10g service is a commodity product in a capital intensive industry.

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