Anil Khatod brings a unique perspective to his new job as a venture capitalist at Atlas Venture: roughly 20 years working at Nortel Networks Corp. in numerous capacities, ranging from group president of Global Internet Solutions to chief marketing and strategy officer. His job at Atlas is twofold. He helps the company identify new companies that can sell into the carrier and enterprise network markets, and he figures out the best direction for some of the companies already in the Atlas portfolio. In this interview, he speaks about the challenges and opportunities of investing in today's network industry.
Q: Investing in the telecom industry can't be a very easy job today, can it?It is not, per se. A lot of people ask me what's hot these days, and nothing's hot. But there's always room for the right technology in just about any space. I was with engineering people from two big carriers last week listening to where they think the next pain points are in the network. That's a useful thing to do to see if we can mold existing portfolio companies to do those things or if there's a unique opportunity for new ones.
Q: So what were they saying?
For the most part, they are going to be in hibernation for the next couple of years. But they did go through their priorities and plans. For Verizon (Communications Inc.), for example, DSL remains a very top priority. There are opportunities, not necessarily for products that get delivered in six months but perhaps in a year or two.
Q: What sort of business plans are you seeing?I've seen surprisingly many optical business plans both for the metro and long-haul. I've seen a lot of component plans, which is probably an area that has some opportunity. I've seen software and a few wireless plans. These are both in the carrier and enterprise spaces.
Q: Where's the activity in the enterprise?The enterprise market looks a little better than the carrier market. The focus is on making data centers more efficient. Enterprises, when it comes to wide-area networking, are looking more at Ethernet-type applications.
Q: Are there still opportunities in optical?I'm very, very, very cautious about optical. I cannot generalize and rule something out, because there could be something interesting in that space, but you're not likely to see us investing wholesale in any optical set of companies. There are opportunities in niches, in components and the metro side. There's not a lot of opportunity in the ultra-long-haul business.
Q: While many of the newer carrier equipment companies have struggled, it's not like they haven't sold anything. Are we seeing any fruits of the technologies they've developed, in terms of new services?To some degree, yes. Has it been as successful as hoped for? No. There are metro DWDM services, like from SBC (Communications Inc.) Nortel had bought a company a few years back called Cambrian that has done very well with its OPTera metro products. There's definitely been a shift in the architecture underlying services offered to enterprises over the last three years.
Q: I'm thinking you're probably not the most objective person in the world to ask about Nortel, but what's your take on that company's situation?I'm reasonably objective. Nortel, like any major incumbent, is going through a difficult period but working to get its breakeven point down dramatically. What the company has going for it is a huge customer base and solid wireless business (there's huge demand for CDMA equipment, and Nortel is one of the largest suppliers). I think all these incumbents are going to make it. It's hard for me to see a company with such a sizeable installed base going anywhere, though everyone can make dumb mistakes.
Q: What's Nortel's biggest challenge?It's not just Nortel, but across the large companies. Lucent has the same issues. One, how can they break even fast enough? The business is continuously shrinking for all the suppliers, and they have to cut costs fast enough to make money at a much lower volume. And two, they can't solve all their problems by cutting costs. They have to get better at capturing and keeping customers to gain market share.