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Upstarts in the Shadow of Fading Giants

The next generation gets growing while the historical leaders continue shrinkingBIZ SPOTLIGHT – Telecom

While some economic prognosticators say the sky is falling on New Jersey’s telecom industry, there is a coterie of emerging companies that are developing and marketing new technologies.

Experts say small firms like Quintum Technologies in Eatontown and VPIsystems in Holmdel can help pick up some of the slack left as giants like AT&T and Lucent Technologies reduce their footprints in the state.

According to James Hughes, dean of Rutgers’ Edward J. Bloustein School of Public Planning and Policy in New Brunswick, over the past 15 years New Jersey has lost nearly 30,000 wireline telecom jobs, the result of dramatic technological shifts in the industry to wireless and broadband communications. In 1990, the state had 5.2 percent of all the telecom jobs nationally. That number shrunk to 4 percent by 2005.

“New Jersey is a very vibrant state for start-up technology,” says Leslie Restaino, a partner in the Intellectual Property and Corporate Practice groups of Newark law firm Sills Cummis Epstein & Gross.

One upstart is privately held Quintum, founded in 1998. It rolled out its first product—a Voice over Internet Protocol (VoIP) software package targeted at business users—in 2000. Over roughly eight years Quintum has grown from five to 110 employees.

Quintum’s product allows businesses to connect their telephone systems to the Internet. “We’ll be used by companies that want to communicate between their offices; we’re used by service providers that will deploy us as customer private equipment,” says Charles Rutledge, vice president of marketing.

Another company, spawned from the downsizing of AT&T and Bell Labs is Eatontown-based Amedia Networks, a developer of next-generation media gateways for managing and distributing TV, voice and data services to homes via high-speed Internet.

Launched in 2003 with two employees, Amedia has grown to 42 employees and has raised roughly $23 million from a group of investors who have supported the company since its inception, says Amedia President Frank Galuppo, a former Lucent executive who joined Amedia in 2004. For the nine months ending Sept. 30, Amedia had a net loss of $12.4 million on sales of $29,603 compared with a net loss of $6.4 million on sales of $5,548 for the prior-year period.

Amedia has developed so-called fiber-to-the-premises (FTP) software that it licenses from Lucent, the parent of its original developer, Bell Labs. FTP is a broadband system that uses optical cable and electronics to deliver multiple services through one link into the home.

Amedia is also developing an undisclosed telecom product for Chicago-based Motorola for an estimated $2 million. Motorola will market the resulting product under its own brand name.

A few towns over from Amedia and Quintum is Holmdel-based VPIsystems, a telecom-software developer that designs programs to help maximize the operating efficiency of fiber-optic delivery systems.

Launched in 1997 as a Siemens spinoff, the company broke the $10 million sales mark for the first time this year. As a result VPIsystems increased its company head count by 50 percent to about 180 employees.

VPIsystems’ executives say they’re waiting to tap into telecommunications mother lode as major carriers start to replace their aging copper networks with fiber-optic cables and deliver more services using Internet Protocol.

“These major players now have to build out their network,” says Mark Mortensen, senior vice president of marketing and product management for the privately held firm. “Every major telecom carrier is increasing its purchase of commercial off-the-shelf software.”

Besides serving as incubators for developing new technology, New Jersey’s cadre of small telecoms are also prime takeover targets. “Cisco Systems started this a while ago,” says Galuppo. “They actually started investing in small technology companies that they thought would be likely takeover candidates for them.”

He says Cisco Systems last year bought a small tech-development company with $60 million in revenues. A year after Cisco’s purchase, it was making $1 billion in annual revenues.

“Given that success, my guess is that this model will continue,” says Galuppo.

E-mail to jmcconville@njbiz.com

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