"One of the things that we're hearing from our customers is that the largest increases in capital expenditures will be for core routing and switching," Lewis says. "There's room for several core players."
Aerie Networks is focused on the same trend. A Denver wholesaler of fiber-optic bandwidth, Aerie raised $115 million last quarter from a group of investors that includes Vantage Point Venture Partners and Wolf Venture Fund. Aerie also raised debt financing to pay for its network rollout.
Aerie is using the money to build a 15,000-mile nationwide backbone network, with construction scheduled to start in December. Aerie will sell so-called dark fiber to backbone carriers as well as offer outsourced network operations services to corporations.
"The reasons we've attracted so much money are pretty simple," says Peter Geddis, CEO of Aerie Networks. "We have a very clear and focused business plan and a strategy that yields operating cash flow and profit in a relatively short period of time."
Geddis says Aerie benefits from earlier venture capital investments in last-mile technologies such as DSL and cable modems that are bringing broadband capabilities to the home and remote office.
"The backbone systems are not adequate aand don't offer an economic model to carry all that traffic," Geddis explains.
Although the 'Net's traffic patterns point to a fiber-optic future, not all fiber-optic start-ups will succeed, warns Cliff Higgerson, a general partner with ComVentures. He says the best opportunities may be for component suppliers rather than bandwidth or system suppliers.
"In the optics business, the value is as much in the components as in the systems. It looks more like the PC business where the value is in Intel, and Hewlett-Packard and Dell are glorified value-added distributors," Higgerson says.
In addition to fiber optics, venture firms also like wireless start-ups. For example, EveryPath, which provides Internet services over wireless devices and telephones, raised $70 million, and Ensemble Communications, which offers wireless broadband access, raised $63.8 million.
"We like both mobile and fixed wireless. We believe they both have enormous growth potential," Spectrum's Collatos says. "On the fixed side, the challenge is simply getting the networks built. On the mobile side, the challenge is getting the networks built but also getting the applications built that can use the network to the fullest capacity."
Higgerson favors carrier-grade wireless equipment, pointing out that the "infrastructure has to be dramatically upgraded for the carriers to be able to support mobile services."
Venture capitalists agree that investment in Internet infrastructure start-ups is good news for corporate IT managers.