Mais Alors! Alcatel Bags $1.7B SBC Deal
SBC Communications Inc. (NYSE: SBC) today announced that it has awarded Alcatel SA (NYSE: ALA; Paris: CGEP:PA) a five-year, approximately $1.7 billion primary supplier agreement for its Project Lightspeed rollout. The award makes Alcatel the main integrator and supplier in SBC's plan to overhaul its access network and drive fiber -- and advanced IP-based services -- closer to subscribers (see Alcatel Wins $1.7B SBC Deal).
When Project Pronto, SBC's last big access network makeover, wasn't pronto enough, SBC kicked off Project Lightspeed, an initiative that, the carrier says, will provide 18 million households with IP-based services including super high-speed data, video, and voice services at a price tag estimated at $4 billion to $6 billion (see SBC Speeds Up FTTH Plan).
This contract award is a huge win for Alcatel, given the sweeping nature of technologies involved and the dollar amount that's cited. "Alcatel is one of the premier equipment suppliers on the planet, and one of the few that could put it all together for a company the size of SBC," says Kermit Ross, principal of Millennium Marketing.
Alcatel will be providing SBC with its own IP routing, Ethernet aggregation and switching, DSLAMs, and fiber-to-the-premises gear, as part of the deal. The SBC win, as much as anything, provides the ultimate validation of Alcatel's acquisition of IP router vendor TiMetra. Mike Quigley, president of Alcatel, North America, says TiMetra put Alcatel in a position to be a "serious IP vendor." (See Alcatel Redraws Router Strategy.)
But Alcatel will also have to hammer some pieces into the big IP access network puzzle. It needs to integrate the optical equipment, residential gateways, middleware, and set-top boxes SBC chooses -- which could come from other equipment vendors. "There's going to need to be, for an end-to-end solution, other awards," says Quigley.
And, though Alcatel is said to be the exclusive provider of several of the Project Lightspeed components, there's always skepticism involving that word, "exclusive."
"When we've looked back at RBOC deals that have exclusivity in the announcement, what's in the contract is something you could drive a truck through," said Morgan Keegan & Company Inc. analyst Simon Leopold on today's conference call with Alcatel.
Still, Alcatel's getting a big boost here. Its $1.7 billion award would make up 58 percent to 72 percent of SBC's total projected spend. "They are not missing many pieces here," says Scott Clavenna, chief analyst of Heavy Reading. "It’s not like Alcatel was overlooked for routing, DSLAMs, or Ethernet aggregation equipment.
"I walked away from this feeling like Alcatel is in an awesome position," says Clavenna.
"SBC will convert much of its access network from POTS to pipes over the next few years, and, in terms of lines converted, it's a much bigger deal than Verizon's FTTP project," says Millennium's Ross.
Alcatel has long been considered a favorite to win the access piece of the SBC's project. Last month, Light Reading Insider accurately picked Alcatel among the alliances SBC would form to spearhead its deep fiber push (see Carriers Prep DSL Wave Part II ). And, in a key development, it was made clear that SBC's approach was going to be neither all fiber nor all copper.
SBC says it is trialing FTTP (fiber to the premises) in a number of locations and it will launch trials of FTTN (fiber to the node), which will involved a wide variety of next-generation packet and broadband gear, early in 2005. This, too, bodes well for Alcatel, which can provide DSLAMs and fiber access gear.
"We have the range of technologies to give SBC the flexibility to use DSL technology or fiber technology to ensure that the video services will work," Alcatel's Quigley says.
The losers in this deal may include several vendors, analysts say. Lucent Technologies Inc. (NYSE: LU), for one, is thought to have been one of the other integrators evaluated by SBC, but not chosen. "The first time in the batter's box with the new systems integration strategy, and they strike out," says Ross.
Other vendors biting their nails include Advanced Fibre Communications Inc. (AFC) (Nasdaq: AFCI), which could see its FTTP gear locked out of SBC for years to come, analysts say.
Given the fact that IP routing was included in Alcatel's package, the deal also doesn't look to be doing routing giant Cisco Systems Inc. (Nasdaq: CSCO) any favors. Cisco was known to be courting the SBC deal as an integrator, possibly in combination with a remote DSLAM player such as Adtran Inc. (Nasdaq: ADTN), several sources have said.
SBC has been here before, but never with as complete, complex, and comprehensive a solution proposed on a single network.
The carrier's Project Pronto initiative, announced in the late 90s, proposed to provide 77 million Americans with DSL service by the end of 2002. By October 2001, however, SBC announced that it would reduce capital spending by 20 percent in 2002 and scale back its original deployment schedule. This summer, SBC had 4.3 million DSL customers.
— Phil Harvey, News Editor, Light Reading