For Broadband Carriers, Startup Ushers in a Cloud-y Future

It’s hard being a broadband provider today; not only are new web services putting extra stress on the network infrastructure, but providers are also feeling the competitive pressure on their revenues. Against such a backdrop, broadband service providers are looking for ways to make better use of their network infrastructure. The latest trick is to use excess processing power in their data centers to help shape and route traffic more effectively and cheaply.

Helping them is a little known company called ConteXtream. Now three years old, the company, based in Santa Clara, Calif. and Israel, is coming out of stealth today, along with news it has raised a $14 million second round of funding with investors that include the nation’s two largest ISPs: Comcast (s cmcsa) and Verizon (s vz). ConteXtream has raised a total of $29 million and has created software that helps turn a service provider’s physical infrastructure into a cloud for broadband services.

To be clear, a broadband cloud is a fuzzy concept, but the benefits for ISPs are real. By deploying the Conte software in their various data centers, ISPs can harness excess processing power on their servers to route traffic on their networks more efficiently by creating a virtual layer in the network. Conte’s Service Delivery Grid software sends packets in a manner that best optimizes the utilization of the network.

Typically, this takes a huge amount of processing power, but processing power is cheap, and building out new network capacity is expensive, what with hiring folks to dig trenches.

Loaded onto servers with 40-Gigabit Ethernet capacity and commodity silicon, the Conte Service Delivery Grid software not only helps service providers use their networks more efficiently (perhaps prolonging time before upgrades) but also allows them to provide services that can be delivered over other ISPs’ networks much like over the top video is delivered today. Yates says a perfect example of this is Comcast’s (s cmcsa) Xfinity service, which one can watch over any broadband connection as long as one has a subscription to Comcast. In the distant future Comcast no longer needs to own the physical plant, it just has to have enough servers and means of routing the traffic efficiently on existing networks and to authenticate users.

ISP’s comfortable revenue and profit streams are under threat as everything from voice to video is now delivered via the web, which means that more and more people are cutting the cord — be it landlines or cable. However, the demand for data over those pipes is rising (Cisco (s csco) predicts it will rise to 56 exabytes a month by 2013). Sure, a certain number of people will continue to pay their ISP $30 a month even for VoIP calling, and will only download emails, but that number is shrinking.

David Yates, VP of marketing for ConteXtream says the software runs on commodity servers and four of the Tier One service providers in the U.S. are using it in field trials. ISPs can run field trials for years, so this may not be as optimistic as Yates hopes it sounds, but if the software can help route IP traffic around congested points in the network, as well as track where packets are coming from, it’s offering something carriers desperately need.

Could this lead to new consolidation efforts among broadband providers as their last-mile infrastructures no longer limit the customers they can serve? Even if that vision doesn’t come to pass, the software also allows for the ability for ISPs to strike deals with certain web services or content companies whereby it can offer better quality of service or deals for subscribers of an ISP. Even if the consolidation or a double-sided revenue model doesn’t come to pass immediately, Conte’s software will still help ISPs make better use of their networks and offer their own over the top services. Plus, it lets the ISPs take advantage of the hottest marketing term around: the cloud.

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