Tellabs Inc.'s (Nasdaq: TLAB; Frankfurt: BTLA) major router win with {dirlink 5|254} (NYSE: CWP) has fallen apart, as the companies have mutually decided to drop the Tellabs 8800 from C&W's next-generation network buildout.

Tellabs CEO Krish Prabhu delivered the news during his presentation at a UBS Investment Bank investor conference Wednesday.

Tellabs stock reacted swiftly, closing the day down 54 cents (5.6%) at $9.16.

In May, Tellabs was the first vendor named for C&W's next-generation network buildout, a three-year, £190 million (US$365 million) job analogous to the 21CN project being pursued by U.K. rival {dirlink 5|21} (NYSE: BT; London: BTA). Tellabs' 8800 was chosen as the edge router for aggregating various legacy traffic onto Ethernet pipes. (See C&W Plans Its Own 21CN and C&W Moves Ahead With NGN.)

But since then, C&W had bulked up its requirements and accelerated its schedule, particularly after announcing the acquisition of Energis plc (OTC: ENGSY) in August. (See C&W Wins Over Energis.) Whatever the new requirements were, they deviated enough from the 8800's feature set for Tellabs to "decouple" itself from the job, as Prabhu put it.

"We chose to suspend our trial with Cable & Wireless largely because we were concerned about derailing our roadmap for the degree of customization it needed," he said. "We made the calculated assessment in conjunction with Cable & Wireless that it was in the best interest of both of us."

C&W confirmed the situation with a prepared statement: "Following the acceleration of an element of the provisioning of C&W’s NGN, it has been accepted that C&W’s timetable requirements would impact on Tellab’s own development framework. As a result, it has been mutually agreed that Tellabs will be released from its commitments on the project. This has no impact on C&W’s deployment plans for its NGN, which remain on target."

Dropping a major vendor partner months into trials and tests usually affects a deployment timetable, though, so what is C&W doing to keep on track? The carrier wouldn't comment any further, but U.K. industry sources say it has been testing metro Ethernet gear from another unidentified vendor and will now switch to that reserve supplier.

The favorite to step into Tellabs' shoes is Alcatel (NYSE: ALA; Paris: CGEP:PA), with its 7750 multiservice router. (See Alcatel Taps Layer 2.)

One industry executive with knowledge of C&W's plans says the carrier had been keen on the concept of an SDH-based multiservice platform, a particular strength of the Tellabs equipment.

However, according to the source, the carrier has had two teams working on potential NGN deployment scenarios, one of which had been looking at MPLS-based options. Recently, the two development teams have been working together and concluded that the MPLS route was more in line with general industry trends, and this resulted in a change of technology strategy, says our source, who requested anonymity.

The source says C&W has been testing metro Ethernet equipment from a number of vendors, including Alcatel, Marconi Corp. plc (Nasdaq: MRCIY; London: MONI), and possibly even Cisco Systems Inc. (Nasdaq: CSCO). The two latter vendors were recently awarded new deals by C&W. (See Cisco's CRS-1 Charms C&W and Marconi Wins C&W Deal.)

Based on developments at C&W during the past few months, coupled with the upheaval at Marconi, which is in the process of being acquired, Alcatel is the favorite to replace Tellabs, believes the source. (See Ericsson Buys Bulk of Marconi.)

Alcatel had not responded to questions as this article was published.

So what's the impact of this move on Tellabs? Prabhu told the investor conference that the decision doesn't imply the 8800 has shortcomings, pointing to a 100-node deployment at {dirlink 5|135}.

Even without C&W, Tellabs might meet its revenue forecast. That's because the company is pursuing fixed/mobile convergence deals for the 8800 in Europe, and they weren't included in the company's fourth-quarter forecast of $487 million to $496 million in revenues, Prabhu said.

— Craig Matsumoto, Senior Editor, and Ray Le Maistre, International News Editor, Light Reading