Executives at Optical Entertainment Network haven’t been available to talk about what led the company to suddenly announce it was discontinuing all services this month. But sources close to the company say a combination of technology debates, deployment challenges and management turnover kept the company from finding the additional financing it needed.

“I think there was so much management change that they failed to be able to continue to raise money,” said one former employee who spoke on condition of anonymity.

After raising more than $13 million from friends and family investors over the last few years, OEN said this summer it had enlisted an investment bank to help it secure more funding from private equity players. By that time, the company was on its third chief executive officer.

This February the company touted plans to bring FTTH services to 20,000 Houston area residents by year’s end, with a network that, at the time, already passed 5,000 homes. In August the company reported having 350 paying customers, and earlier this month, OEN told all its customers to find other providers “due to circumstances beyond our control.”

A turning point in the company’s history came last year, when its engineers, led by Chief Technology Officer Allen Easty, decided against deploying the passive optical networking (PON) gear the company had already chosen from Alloptic (which had been tested but not deployed) in favor of active Ethernet gear from Packetfront.

“It was a group of engineers getting together and having a serious case of vendor love,” said the former OEN employee.

That decision was opposed by the company’s second CEO, Tom Wendt, and was one of the main reasons Wendt left the company last year.

Packetfront’s gear would give OEN more bandwidth to the home but would also require a bigger backbone network and more construction costs. It also posed challenges in terms of deploying and powering the outside plant.

No one maintains there were any problems with Packetfront’s gear. (Packetfront itself declined comment for this story.) But the use of active electronics in the field (something PON gear doesn’t include) required especially large cabinets and pedestals to be erected in subscribers’ neighborhoods.

“You get the [community’s] reluctance to having all this lawn furniture laying around,” the former employee said.

Whereas a PON network would have allowed the company to break even with 15,000 subscribers, the ex-employee said, the active network would require 22,000.

Deployment challenges clashed with the company’s management turnover. Its last CEO, Albert Estrada, came from the sales and marketing side of the business, having worked at HBO and DirecTV. And the vice president in charge of OEN’s outside plant, while an experienced networker, didn’t have much experience in outside plant deployment, sources said. In April, 180Connect, an installation and technical services firm, announced it had been hired to help deploy OEN’s network.

“People who didn’t understand the infrastructure game were running the company at that point,” the former employee said. “They didn’t realize the long, long road to building out these types of infrastructures.”

“They over-designed the network and never got a deployment strategy in place,” said a source from a former OEN supplier who also requested anonymity. “They had an engineering plan but no implementation plan.”

OEN originally brokered a partnership with Phonoscope to use that company’s fiber network. But that relationship faltered, forcing OEN to find other fiber. This May, OEN agreed to buy the Houston-area fiber network of IPTV provider Eagle Broadband. But because OEN was fighting with the state of Texas over tax liens, the deal didn’t close, and OEN leased the network instead. OEN agreed to pay Eagle $200,000 in cash and extended a loan of $1.7 million at 9% annual interest that would be due in total by July 2008.