Investing in the Future of Broadband

A traffic shaping solution maker gets a big investment from an investor with connections.

by Alex Goldman ISP-Planet Managing Editor [July 18, 2005]

Today, Merrimack, N.H.-based traffic management solution vendor Ellacoya is getting a big endorsement from Toronto, Canada-based venture fund BCE Capital, a subsidiary of the holding company that also owns Bell Canada. The endorsement comes in the form of $13.5 million in VC funds in a round led by BCE Capital but with participation from other investors.

Getting money from BCE is not the same as getting money from Bell Canada. BCE has access to people at Bell Canada, and can ask them what they're thinking about, but an investment from BCE Capital does not mean that Bell Canada wants to own or control Ellacoya's product development process—or even that Bell Canada will eventually buy anything at all from Ellacoya.

It means that Ellacoya's products solve the types of problems that Bell Canada's managers are worrying about.

Gerald Wesel, Ellacoya's Chairman and CEO, tells us that problems the company began solving for cable MSOs when it was founded in 1998 are problems that all broadband providers are now worried about. "Early on, Ellacoya identified a tactical issue for cable MSOs, the challenge of effectively reporting on and managing bandwidth. Ellacoya provides service providers information about what's going on in their network by application or by subscriber."

David McCarthy, managing director at BCE Capital, emphasizes that's exactly the issue: "the investors wanted to prioritize voice and video, not fill the pipe with P2P. There's a question the answer to which is to be determined: can you charge more for an internet access that does a better job of prioritizing voice?"

He makes it clear that P2P is not bad; service providers are simply worried about the challenge of delivering VoIP and IPTV. "You do not want to alienate P2P users. Maybe at peak times, just as an example, you could limit P2P use, but have no bandwidth limit for P2P during off peak hours."

But Ellacoya (and products like it) offer an even more basic value to service providers. "Often, it's the first time they see what apps are taking up what bandwidth on their network," McCarthy says.

Wesel says service providers need to be able to deliver what they expect customers to pay for. "Service providers are charging money to customers. If they charge a premium price for a service, they need to make sure they can deliver."

Asked whether Bell Canada or others will prioritize their own product at the expense of third parties, McCarthy emphasizes that he's not part of Bell Canada. Wesel adds that doing so would be counterproductive. "The service provider has a choice. They can prioritize a third party or they can host their own and charge for that as well. We want to allow our customers to provide or offer their customers a service they can charge $5 or $10 per month and deliver guaranteed quality VoIP service."

It sounds to us as if, rather than block third party VoIP providers, Bells and MSOs can, in theory, undercut their pricing by selling VoIP as part of a bundle, but that's just our understanding of the issue, and it's not what Wesel and McCarthy are saying.

However, Ellacoya isn't just for large service providers. The company is branching out, from MSOs to all broadband providers, from large providers to small. We expect, in a follow up article, to write about how a small provider, possibly a WISP, is using Ellacoya.

In today's press release, Mark Mangiola, venture partner at Canaan Partners, enthuses, "Ellacoya has game changing technology and products that are empowering service providers to save significant operations costs and move beyond offering basic internet services to delivering value-added, premium services that enable profitable new business models."

Wesel says that the service provider of the future will offer a connection that the end user can customize. "So if you enjoy Xbox gaming with your brother in Culver City, California, and you want to pay as you go, with a turbo button to boost speed as you need it, you can do this. This is a few years down the road, but service providers will be able to allow users to customize their internet connection."

The integration between billing and authentication has already been done (especially for cellular providers and cable TV companies that offer pay per view). Ellacoya integrates authentication with traffic shaping. Of course, it's not the only one doing this. The competition will be interesting.

As services converge, the back end will be more complex, and companies that used to serve only one kind of telecommunications provider will find, as Ellacoya did, that what works for one can work for all, opening up new possibilities, new challenges, and more competition—as long as regulators don't intervene to prevent IPTV, VoIP, and other innovations.

— End