Game-Changer Startup Alert: Phybridge and the rebirth of the twisted pair.

Most who follow this blog anticipate updates about publicly listed technology Companies. Going forward investors are likely to see a select few earlier stage private tech startups profiled. The criteria for such a profile is simple: potential game-changers.

Phybridge is an early-stage startup (and graduate of the UofT's Accelerator incubator) located in Mississauga that has developed technology that makes twisted pair copper (essentially the phone line) a viable Internet Protocol-based (IP) high speed data network.

Introducing VoIP over twisted pair. The first killer application is to enable Voice over Internet Protocol (VoIP) with a single point of convergence to the data network in the server closet. Until Phybridge's introduction of Uniphyer a few weeks ago, there was no simple and cost effective way for enterprises to repurpose twisted pair to deliver the productivity benefits of converged IP-based communications.

ROI is unbeatable. Although the benefits of VoIP are clear from a productivity standpoint, the ROI of migrating from digital telephony to VoIP is often impaired by the costs of upgrading facilities to CAT5/6 cabling, and by the ongoing expense of managing data throughput priorities in order maintain (or at least come close to) the quality of voice service and reliability that clients have become accustomed to via digital switched telephony. Broadband networks will only become more clogged with SaaS applications and streaming media over time, so VoIP QoS is likely to remain at risk. Business disruption during VoIP deployment is a significant issue because it could take days or weeks to recable and tune. By contrast, deployment of the Phybridge solution could take, literally, minutes. For proof, check out this video.

Intrinsic network redundancy. The data network itself represents a single point of failure risk in the case of network disruption. Not only are data systems down, but so are communications systems; essentially a company is "out-of-business" for as long as the data network is down. For many 24-7 enterprises, this is an untenable risk. By repurposing the twisted pair for VoIP, it becomes an intrinsically redundant parallel-but-connected network for communications. In addition, the Uniphyer solution also provides power to the handset, which makes the network even more redundant in the case of a power outage to the data network.

Who cares? Telecom vendors. Since the introduction of VoIP about a decade ago, Cisco Systems (CSCO) has chewed into about 25% of telephony market share at the expense of telecom gear and phone service vendors like Nortel (NT) (no explanation required here), Avaya, and Mitel among others. A good portion of the other 75% of the remaining market is at risk as big switches deployed at the beginning of this decade come to end-of-life. Needless to say, the entire telecom ecosystem is beginning to take notice of what Phybridge is doing. With the current plug-and-play Uniphyer appliance, telecom vendors can extend the life of switches that would otherwise become irrelevant, while extending the life of a previously considered obsolete network, and delivering new revenue streams to telecom services vendors that Cisco cannot otherwise access. Copper becomes viable again.

Who cares? Anyone in a concrete building. Of the 75% of the telephony market not yet tapped by Cisco, a significant portion is simply unable to take advantage of VoIP and related converged services because it is cost prohibitive to upgrade networks. In particular, the health care sector is watching developments at Phybridge closely. Hospitals throughout North America constructed prior to this decade do not have adequate cable infrastructure for VoIP deployment, and hospital administrators do not want to disturb the nastiness that is behind most of the walls, including (believe it or not) asbestos. Although healthcare services could benefit greatly from VoIP, there has been no plausible way to upgrade. Similarly, class "C" buildings, heritage buildings, hotels, and other institutions (schools, colleges, governments) have been unable to effectively upgrade. Until now. In partnership with Phybridge, phone services vendors now have a wide swath of previously closed market open to them. And Cisco can't get at it.

Can Phybridge fulfill its promise? Among Canadian technology startups, conditions for success are particularly brutal because they are often under-capitalized as domestic investors remain fixated on resources and commodities. Even among technology investors, telecom is not sexy, as most investors (and this blog) are focused on high profile technologies such as SaaS, mobility, social networking, broadband, and virtualization. There is even less sexy in twisted pair, which could be a source of skepticism among jaded investors previously burnt by failed telecom investments. That is, until one digs into the problem and discovers a multi-billion dollar greenfield opportunity with a sense of urgency.

Management has horsepower and a track record. The founding partners John Croce and Oliver Emmanuel (the brain behind the solution) have managed to scrape together somewhere north of $1 million from friends and family earlier this year. Currentl operations are very lean with a monthly burn rate of less than $50k. The business potential associated with the technology has managed to attract heavy-hitter senior management from Avaya including Steven Fair, who led the approximate $200+ million annual sales organization in Canada and was, for a time, interim President. John Croce himself has generated significant returns for shareholders with previous successful start-up ventures in financial service and real estate. He has a track record of proven success.

Channels blooming. Recently, the company has also been busy signing up significant distribution partners including Jenne and Westcon among others. In discussions with management at Jenne ( a +$100 m operation in Ohio), it has already educated hundreds of resellers who immediately "get it" and are already beginning to sell into the US market.

The labs are surprised. Interestingly, the solution has also been "fast-tracked" into the labs of many of the major telecom vendors in North America. The initial response from the labs is to be "blown away", because most thought a solution similar to Uniphyer to be impossible.

References are real. Beta customers so far have been impressed with the ease of deployment and the quality of service. For one client in Ottawa, several dozen endpoints were migrated to VoIP and brought live in less than 90 minutes from start to phone calls.

Scaling risk should be noted. Operationally, the Company has outsourced manufacturing of the appliances to China for its first clients and partners. Investors should take note that there could be some short-term working capital risk associated with its growth potential. Within a few days after official release, the Company already has a sales funnel for Uniphyer valued in excess of $5 million. The company has the sales horsepower on board to close, which could create a parabolic growth curve.

Over time, (actually as soon as possible) the Company expects to license the intellectual property to telecom vendors in order to maximize margins, and to improve scalability.

Clear path to exit; but will shareholders get maximum value? With the amount of interest shown in the technology by telecom services vendors throughout North America, there is likely a clear path to future exit for shareholders. The seminal nature of the technology has attracted early executional horsepower, so there are strong indicators that the company may be able to fulfill its latent potential. However, the big question will be whether the company can be capitalized to the point where it can maximize success and shareholder value before it gets taken out. John Croce has done it before, so there is good chance that he can do it again. Smart investors should take note...and begin pounding on his door.

Disclosure: I own shares of CSCO, although I do not own shares of any of the other companies mentioned in this post.

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