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On the Internet, you can never be too fast or carry too much data, which is why Sprint is crowing about its plan to convert its core network to deliver data at 40 Gbps using the 40 Gigabit Ethernet technologies. The carrier will use Cisco and Ciena gear to deliver 40 Gig E Gbps over its existing fiber network worldwide. To help put the speeds in context, a 40 Gig E backbone will be able to carry 3.2 terabits of data per second. That’s a lot of cloud services or HD video via iTunes, but Internet consumers are demanding it. And with the speed which new services, including video and 3G wireless, are growing, we need the speed.

Sprint has long been eager to experiment with new technologies, building out the first fiber network back in the 80s and 90s. In 1999 –well before convergence was all the rage — it launched a converged voice and data service built on a packet-based network dubbed “ION.” However, those experiments have not always translated directly into dollars. Sprint spent more than $2 billion on ION before killing it three years after its launch.

More recently, Sprint has bet on WiMAX, but its beleaguered Xohm network has been plagued by delays. Sprint has had to turn to rival Clearwire in order to bring the 4G service nationwide. So I applaud Sprint for investing in 40 GigE faster broadband and only hope it can find some return.

(We will update the story after talking to Cisco and Sprint.)

Looks like Cisco Systems (CSCO) is dead serious about turning the screws on the competitors of its Linksys line of products. Today, Netgear (NTGR) announced its first-quarter 2008 financial results and they were, to put it mildly, terrible. Sure, revenues were up 14 percent on a year-over-year basis, but operating income, net income and earnings per share took a big dip. Netgear stock is tanking this morning — down 10 percent as Wall Street cuts estimates and turns sour on the company.

Why? Because Cisco is waging a price war on the company and its brethren. In a press release, Netgear CEO Patrick Lo said,”We also observed a slowdown in the U.S. retail market, prompting our primary competitor to lower prices below ours for certain consumer products.” Who might be that primary competitor? Mark Sue of RBC Capital Markets points to Cisco.

Lo seems confident that Netgear can weather the attack and plans to introduce a whole new slew of products “that we believe will strengthen us further in the SMB market.” The company introduced 11 new products in the first quarter and aims to introduce 12 more in the second. For Cisco, SMB has been a good area of growth, and it wants to rev up the revenues, never mind the low margins. Of course, all this will come to naught if the company kills the Linksys brand and shoots itself in the foot, as our poll suggests.

• TechCrunch: Google, Microsoft Preparing Bids for Digg
• ArsTechnica: U.S. Rural Broadband, You Can Get it But You Can’t Afford It
• Light Reading: Appliance Vendors Don’t Fear Cisco
• Reuters: Ciena Quarterly Profit; Outlook Beat Expectations
• Fortune: Re-engineering HP Labs
• Gizmo News: Apple to Allow VoIP over Wi-Fi

Acme Packet on Tuesday said it is testing its secure session border control product, with the goal of deploying it in Europe and America before the end of the year, highlighting the growing interest in helping carriers secure and manage the edge of their networks. It joins Stoke, NextPoint Networks (created by the merger of NexTone and ReefPoint) and Starnet Networks in providing equipment that manages and secures data when a call or data session hops from a secure network to one that isn’t.

As handsets come equipped to offload calls and data transfer from cellular networks to Wi-Fi, WiMax or femtocells plugged into a broadband connection, and as more carriers offer such services themselves, managing and securing the transitions from network to network becomes more important. At the moment it’s not a huge issue, but as European and rural carriers in other parts of the world deploy and promise to support femtocells (TMobile and Sprint are looking into it here), using jerry-rigged Cisco boxes won’t cut it.

Keith Higgins, VP of marketing at Stoke, compared the products to routers in the early days of the Internet, saying that much in the same way that routers allowed the Internet to stay nimble and resilient, these sorts of boxes will broaden the ability of a carrier to offload traffic from its network and keep sessions secure.

It’s a big vision for a nascent market, but technology startups rarely dream small. Seamus Hourihan, VP of marketing at Acme Packet, said he expects it to take off in more developed areas of the world that already have fixed and mobile networks. Oddly, Stoke seems to have had success in India, which isn’t exactly known for its massive broadband penetration, and in Japan, which is.

Vint Cerf’s Facebook profile includes a picture of him wearing his favorite t-shirt: it reads “IP on Everything.” Cerf co-authored the 1973 paper that led to TCP/IP being used as a means to interconnect previously incompatible computers and networks associated with the ARPANET. Increasingly, Session Initiation Protocol (SIP) is playing a similar role as the common denominator interconnecting diverse communication devices and networks. And although the protocol geeks either love or hate SIP, its rapid adoption makes it impossible to ignore.

Although Microsoft and Cisco offer competing visions of the future of communication, they both support SIP. Skype rose to fame via a proprietary protocol, but Skype utilizes SIP as the means to connect with the telephone network. Several dozen device manufacturers — from Nokia and Philips to Sony and Siemens — offer SIP-enabled devices, and virtually every other consumer electronics company on the planet plans to roll out SIP-enabled devices over the next 12 months. Ten million SIP-enabled phones have sold to enterprise customers. Avaya, Nortel and Siemens may argue over who has the best features, but they all support SIP.

The entry-level price for an SIP telephone fell to $40 in 2007 from $400 in 2002. Chip manufacturers like Texas Instruments and Broadcom already have third-generation functionality in the pipeline. Best Buy et al do not currently carry SIP phones, but web sites dedicated to SIP-enabled products (e.g. telephonydepot.com) arrived in 2007. Hundreds of companies (e.g. Betamax Group) bridge SIP calls to the traditional telephone network. Fring provides free software that turns mobile handsets into SIP clients enabling voice and IM functionality via Wi-Fi and 2G or 3G data plans.

The patent woes of SIP-based Vonage seem to have squelched the stream of SIP VoIP startups for the time being. For some 20 years, the TCP-IP protocol that Vint co-created achieved very little in the way of public awareness until the arrival of Mark Andreessen’s web browser. Cheap telephone calls represent SIP’s thin edge, but SIP still needs its web browser moment.

Solutions exist for the early obstacles encountered by SIP, such as NAT and firewall traversal. Adobe’s plans for integrating SIP into Flash may go a long way toward unleashing more creativity. SIP continues to evolve with peer-to-peer SIP arriving to challenge client-server SIP during 2008. Yet we remain in the horseless carriage phase, in which everything gets framed in terms of the old model. SIP phones do little more than replicate the features and functions of traditional telephones.

In any case, to quote Victor Hugo, “Nothing is as powerful as an idea whose time has come.” In the 100 years between 1876 and the 1980s, the painfully slow pace of innovation associated with wired telephone monopolies meant that a mere 600 million people were able to use the telephone as a means of communication. Over the next 25 years, competition between cellular carriers increased the pace of innovation enough to allow the technology to reach two billion people. Now, an even faster pace of cost performance improvements positions an infocom ecosystem of SIP devices as the solution to bring communication to four billion people. The time has come for SIP.

I was reading this week about Blackwave, an Acton, Mass.-based startup that just changed its name (from Acionen)Blackwave and got a whopping $16 million from Sigma Partners, Globespan Capital Partners and IDG ventures, and all I could think was: What makes this company worthy of such a massive cash infusion?

As it turns out, two words: online video. Blackwave has come up with a new kind of hardware that combines all sorts of network elements — load balancers, storage systems, streaming servers — into one package, topped off with a Mensa-quality management software layer.

This isn’t the first time a startup has taken a do-it-all, “God box” approach to building hardware, mind you. And since most of them have failed, Blackwave’s future is far from secure. Still, their approach does have a certain logic to it.

When it comes to web infrastructure, most companies typically buy boxes from different sources — storage systems from the likes of Network Appliance (NTAP) or Isilon (ISLN), for example; load-balancing gear from Cisco (CSCO), switches from Foundry Networks (FDRY) and servers from Hewlett-Packard (HPQ), Dell (DELL) or Sun (JAVA). They then try to build a bespoke solution, managed with specialized software.

Blackwave has basically taken all of the boxes, put them into one device and made the device good at one thing — delivering rich media content (loose translation: online video) as smartly and cheaply as possible. “We can reduce the hardware costs by a factor of ten,” says CEO Robert Rizika. Why? Because the system can adjust itself according to traffic needs — almost like pants that adjust to the size of the meal.

Let’s say, for example, that an online video destination is hosting a Britney Spears video clip. The system has allocated 100 concurrent users to stream the video when suddenly, it gets linked to Matt Drudge’s web site, and the number of people who want to watch the video balloons to 100,000. The system will automatically reallocate resources to that video. Rizika claims other benefits. “Most single rack (servers) can handle, say, 2,000 concurrent streams, and we can handle 20,000 concurrent streams,” he boasts.

It is hard to assess how realistic those claims are since the company refuses to talk about how it’s getting things done inside its boxes; Rizika refused to even let us know if Blackwave was using its own chips. “We use off-the-shelf components,” is all he would say.

At this point I would typically become skeptical about a company’s claims. But Blackwave has two things going for it — Chief Technology Officer David Carver, and overall market trends.

Carver was previously director of research and development at video-on-demand company SeaChange (SEAC); prior to that, he worked at video conferencing supplier PictureTel Corp. In other words, he knows digital video very well, and understands its complexity.

The second thing working in Blackwave’s favor is the fact that the market is crying out for a solution like theirs. For quite a while, bandwidth (despite steady price declines) took up a major chunk of the money spent on delivering content over the Internet. Hardware, thanks to rapid commoditization, commanded a far smaller share of the monies spent. Now the pendulum is starting to swing in the other direction, with hardware consuming more of the total budget.

Blackwave backer Jonathan Seeling of Globespan Capital Partners and co-founder of Akamai told The Boston Globe:

“Most of the stuff out there today to store Web video is really systems that were always designed and always intended” for businesses that needed to store and sort through masses of data, not movies.. “People weren’t thinking about traditional storage systems as being used for delivering very large monolithic files of video.”

Rizika declined to give details as to who is currently using Blackwave’s boxes, but he did hint that the three-year-old startup counts a social network, a media company, and a user-generated content web site among its customers. Some speculate that the media company might be NBC. They are hoping to get other media companies and content delivery network operators to buy its gear.

They better do it fast - the cushion of venture capital cash can deflate very quickly.

Long before the options backdating scandals brought the arcana of stock option accounting to light, companies have struggled with how to appropriately value and price the handy derivatives they give to their employees as inducements for peak performance and loyalty.

Pricing stock options is difficult because estimating an option’s future value depends on the assumptions you make about when the bearer of the security is likely to sell it. This is hard to predict. Markets are fickle because people are fickle. This is why, for decades, companies have had to value their employee stock option grants (ESOs) using complex theoretical models like Black-Scholes or the (even weirder-sounding) Lattice Binomial method — algorithms so fraught with variables that the concluding valuations are little more than arbitrary.

(Backdating, where the option grant date is altered to give the derivative instant value — without triggering an accounting charge — was just one way of getting around the uncertainty of ESO “valuation.” It was then end-run around the accounting rules that caused the resulting SEC and DOJ investigations.)

But it could be that tech companies no longer need to anguish over how to value their employee stock options.

Last week, the Securities and Exchange Commission gave final approval to an auction method for valuing ESOs proposed by Zions Bancorp (ZION) of Salt Lake City.

Zions will create a new security to mirror the ESOs, then sell these derivatives (they’re calling them “employee stock-option appreciation rights securities”) to public investors in an open-market auction. The price investors are willing to pay for the Zions ESO-derivatives will be used to determine the fair value of the ESOs themselves. This value is what a company will then use to properly account for the ESO grants on its income statement.

“For the first time, companies have a market-based alternative to employee stock-option valuation models,” the company said in a statement last Monday.

The financial services firm is expected to market its new service heavily to technology companies, where equity compensation remains important. They may have some takers. Tech companies have tried to win SEC approval for alternative ESO-pricing methods in the past. Cisco (CSCO) spent years on such an effort, only to have its proposal — which was similar to the Zions’ system — turned down. This explains why some folks, familiar with both the Cisco and Zions methods, have been expressing surprise.

The Financial Accounting Standards Board’s revised rule FAS 123R allows the creation of a derivative security to determine to price of an option, provided that:

The fair value of an equity share option or similar instrument shall be measured based on the observable market price of an option with the same or similar terms and conditions. (emphasis ours)

The problem with the Zions method, according to one critic, is that it will create a derivative “instrument” that is dissimilar to the underlying ESO, in three important ways:

1) Zions’ derivatives will be transferable, meaning they can be traded between parties (stock options are non-transferable).

2) Zions’ derivative can be hedged, meaning they can be sold short to mitigate risk (a stock option cannot be hedged).

3) The bearer of a Zions derivative will not get to decide when, or even if, the contract is exercised — that will be determined by the owner of the underlying option. When the employee exercises, the derivative investor will have to exercise, too.

This last characteristic is really strange. It is highly unusual for the “exercise decision” of any derivative to be out of the hands of the owner of said derivative. It also recreates the very problem that alternative ESO-pricing proposals purport to solve in the first place: If you don’t know if you can ever sell a security, how do you value it — much less account for it?

“With the Zions proposal, the employee and the [derivative] investor aren’t getting the same thing, so it’s not easy to tell if what the [investor] is getting is worth more, or less, than what the employee is getting. I don’t know that the value of the derivative is particularly relevant for pricing the option. Frankly, I don’t know what the SEC sees in this proposal,” one derivatives expert told me. (The expert asked not be identified because he’s not authorized to speak on the topic on behalf of his employer, a large investment bank.)

Since its own proposal failed, we wondered if Cisco would consider employing Zions’ new pricing mechanism. It doesn’t sound like it (but maybe it is just sour grapes):

“We are pleased that the SEC is open to market-based approaches,” spokesperson Heather Dickinson told Financial Week last Thursday, without addressing whether Cisco would try Zions’ newly-approved approach. (Cisco has been using the Lattice Binomial method since its own proposal failed.)

Intel (INTC) spokesman Tom Beermann said: “We’re monitoring developments in this area but haven’t made any decisions at this point.”

“The scuttlebutt that I’m hearing,” added our derivatives expert (he also consults to companies on their ESO policies), “is that Zions thinks this is the greatest thing since sliced bread. Everyone else thinks it’s just too obscure to use. I’d be surprised if it takes off.”

After being skeptical of WiMAX for quite sometime, Cisco Systems (CSCO) is changing its tune, and has decided to play the WiMAX game. It is doing so by buying Navini Networks for a whopping $330 million in cash and stock. It was apparently one of the worst-kept secrets out there; the analyst community had been talking about the deal for nearly a fortnight.

Why this change of heart? One could point to United Nations/ITU giving their blessing to WiMAX. WiMAX is becoming quite popular with operators in emerging markets, where little or no prior infrastructure exists. Countries like India, China, Brazil and others are looking to building WiMAX-based wireless broadband networks. Of course, Cisco can’t let rivals like Motorola (MOT) get all the business.

Cisco posted this video on their blog explaining why they bought Navini.

As a big believer in real-time interactions, I was excited to read about TokBox, a new startup that just received $4 million in funding from Sequoia Capital and has the blessing of the very same people who were involved with YouTube (GOOG), including YouTube’s third co-founder, Jawed Karim. (Though that doesn’t ensure success!)

By leveraging Flash features that connect to a computer’s built-in webcam and sound card, TokBox allows you to conduct web chats via a web browser, without the need to boot up a special program. And the web chat module can be embedded into your blog or social networking profile.

It’s an interesting idea, but more of a feature than a platform for a standalone company or model for a viable, long-term business. Even without chatting with the company, it’s clear that this is an idea that can be quickly imitated by others, much like YouTube. If (and that’s a big if) TokBox is going to work, it will need to be rapidly adopted by the marketplace.

At that point, Sequoia can easily flip it to someone. If this is a modest success, then Cisco Systems (CSCO), which is looking to add some video oomph to its WebEx property, could fit the bill. If it’s a monster consumer hit, then Google’s (GOOG) YouTube could be a buyer.

But in order for TokBox to become a monster consumer hit, the company needs to fix its technology. I have been spammed non-stop this morning: 157 messages so far, all because a close friend signed up with TokBox and wanted to share it with me. No thank you, friend! For the sake of our friendship, please don’t share untried services with me. I am really not in the mood to be a guinea pig this Monday morning.

And to the rest of you who are thinking about trying TokBox: don’t. Not until these kids figure out what the problem is.

From WebWorkerDaily: Anne Zelenka says no thanks to video conferencing for web workers.

With 3G around the corner, and 4G not far behind, the wireless networks are going through some major changes. As more and more folks sign up for these wireless high-speed services, there will be a need for better management of the wireless spectrum. It was something I wrote about when I profiled Hypres, a superconductor company. (This is a theme I intend to follow in the coming weeks and months.)

The same trends are unfolding in the corporate market, as Wi-Fi and other wireless technologies entrench themselves in the corporate campuses. That is one of the reasons why Cisco Systems (CSCO) today said it’s buying Germantown, Md.-based Cognio, one of the leaders in the spectral management sector. The Cognio acquisition will be No. 122 for Cisco and the first one in fiscal year 2008. Terms of the deal were not disclosed.

Cisco recently released their own unified wireless LAN controller, and Cognio’s technology is supposed to work in tandem with that. Cisco’s Pat Calhoun explains on the company blog why spectrum-related tools are critical to large companies.

It hasn’t even been a month and there are already cracks in the much- vaunted peace accord between Cisco Systems (CSCO) and Microsoft Corp. (MSFT).

The chief executives of the two companies, John Chambers and Steve Ballmer, got on stage last month — together with Charlie Rose, playing the role of peacemaker — and declared a truce.

The two giants of the tech industry assured their corporate customers that they would play ball and would ensure that their respective enterprise communications offerings — hardware and software — work together.

While we didn’t believe in this faux peace, we were happy to forget all about it. Until, that is, we came across this post by Joe Burton, chief technology officer of unified communications at Cisco.

Burton takes some not-so-subtle swipes at PC-based unified communication solutions. Now, he isn’t explicitly citing Microsoft, but…you decide for yourself.

• Can any business wait around to get outpaced by competitors while they experiment with PC- or email-client-based architecture for unified communications?
• Can they afford the 18-24 month wait for a software-client-based call control architecture that will be marginally mature and deployable?
• Can they really depend on PC “experts,” who are learning on-the-job to implement a business class unified communications solution that meets their communication requirements?

Burton points out that instead of desktop or PC-centric solutions (read Microsoft), unified communications have to be network-based (read Cisco).

For businesses waiting to evaluate PC (or email) client-based-software architecture for unified communications, the opportunity cost associated with this inertia is difficult to justify.

Allan Leinwand in this post had outlined why the so-called peace would be short-lived.