Optical equipment startup Meriton Networks has gone no farther than its own back yard to find its first Canadian customer as its ramps up for what its CEO is certain will be a bright future.

Telecom Ottawa, the high-speed data and Internet services firm spun off from Hydro Ottawa, said last week it will use Meriton's technology to increase its network capacity.

( Note: This is an expanded version of a Web story from last week that ran in the March 8 issue of the OBJ )

With US$46 million in venture capital behind it, Meriton has endured the telecom slump by focusing on the metro market rather than the battered long-haul market that has derailed so many promising Ottawa startups, such as Innovance Networks and Ceyba.

Meriton's hardware combines switching and transmission of data in a single box, rather than the two commonly used by service providers. The integrated unit reduces costs for service providers and provides more flexibility in their network.

The deal ranks as Meriton's first in Canada and pushes its customer count to about six. So far, the company's market traction has come in North America, said president Mike Gassewitz. Meriton has sales offices in the U.K. and Singapore and is working with service providers in Asia and Europe, but has not yet garnered any revenues from those markets.

He added that finding that first Canadian customer so close to home was simply a matter of luck and circumstance.

"I guess it's just a lot of good work on our sales team's part," he said. "We've worked with a whole raft of players across Ontario and Canada. (Telecom Ottawa) obviously knew about us and liked the proposition. Then the opportunity came up and we proved in from a cost perspective and that's how we won the business."

David Dobbin, chief operating officer of Telecom Ottawa, emphasized that Meriton was picked because it had the right product at the right price, not because it was a local firm.

Dobbin said the technology will allow Telecom Ottawa to tie together its regional networks, add new services and increase capacity.

"We are now better positioned to provide affordable access to our bandwidth across Eastern Ontario."

Meriton isn't profitable, but its growth strategy is firmly on track, Gassewitz said, adding a third round of financing will be needed in the near future and emphasizing he intends to build the company into a publicly traded firm.

For now, the goal is to leverage Meriton's customer wins into more revenues.

"I guess it's a difference between strategy and tactics," Gassewitz said of the tradeoff between building for long-term growth and driving for a profit. "Definitely, the strategy is to drive this thing to be profitable. We're running a business at the end of the day."

However, he added, at the moment Meriton is still "very much in that tactical mode" of building revenues.

Gassewitz believes Meriton has cleared one big hurdle: the stigma of being a startup with a small market presence. Customer wins provide a validation of a startup's technology and business plan, but customers must still balance the risk of committing their business to a smaller player that may yet fail, he said.

"We've managed to keep these guys satisfied that we're going to survive," he said.

Meriton was founded in 2000 by veterans of Newbridge Networks. The company's investors have characterized the company as Ottawa's next Newbridge. Gassewitz considers that to be "a tremendous compliment". On the other hand, Newbridge was a big Ottawa firm that ended up acquired by a foreign firm, Alcatel SA.

Gassewitz said his intention is to build Meriton into "a profitable standalone entity that has the potential to go public". On the other hand, management must consider the best return for shareholders, be that a public offering, merger or takeover.

"You never say never," he said. "At the end of the day, it is about offering a healthy return to the investors. Catena (Networks) is a good example, where they were driving toward profitability and they reached that goal. And whether your next step is toward an IPO or accepting an acquisition, again that is going to be up to the investors in terms of where they think they're going to get the maximum return."

Catena, a profitable startup with plans to become a publicly traded billion-dollar company, accepted a takeover offer from U.S firm Ciena Corp. last month worth about US$487 million in stock.

Gassewitz's focus remains on building revenues and reaching the profitability mark.

"Absolutely, we've been marching toward a plan ... and we're nicely on track," he said.