New figures from RHK Inc. show Tellium Inc. (Nasdaq: TELM) has significantly increased its share of the worldwide optical core switching market at the expense of rival Ciena Corp. (Nasdaq: CIEN) (see Tellium Boosts Market Share).

RHK says Tellium holds 29 percent of the $465 million worldwide optical core switching market (located mainly in the U.S., Canada, and Europe) and 34 percent of the $380 million North American market.

In 2000, Tellium owned 19 percent of a market valued at roughly $83 million, essentially isolated to North America, according to RHK. The new estimates give Tellium a 10-point market share gain.

RHK's figures also show Ciena Corp. (Nasdaq: CIEN) has dropped 14 points in its worldwide share -- a situation that RHK says indicates carriers are preferring Tellium's switches over other vendors' in core networks.

Indeed, RHK says Tellium is the market leader for core grooming switches, which selectively aggregate and manage specific STS48 links (2.488-Gbit/s increments of larger Sonet connections) between carrier central offices. RHK says Ciena leads in edge grooming, where STS1 granularity is needed to effectively bring enterprise traffic and private lines into the optical core.

So far, RHK says, a lack of products precludes any leadership in pure photonic switching, the third category in RHK's optical switching taxonomy.

Opinions differ as to why Tellium's share has grown so much so fast. "The marketplace is speaking. Our product actually does what we say it does," says Tellium CEO Harry Carr. Tellium's choice to focus exclusively on selling its switches as a core solution is paying off, he maintains, because carriers see savings in capital and operating costs with a switch tailored to fit core requirements without extra programming or modification.

RHK thinks there is substance to Tellium's claim of being more economical, but the firm hasn't been able to nail down the specifics. "There appears to be some kind of time factor involved," says Dana Cooperson, director of optical transport at RHK. She thinks Ciena switches may take a trifle longer to set up for STS48 grooming than Tellium's are -- which translates to a bit more operating expense. But she is careful to say her research isn't completed yet and that she needs to confer with Ciena before making a final call.

Ciena, not surprisingly, isn't buying any of this. Spokespeople say they don't see any decrease in Ciena's presence or increase in Tellium's competitive threat among carrier customers. "This is one market researcher's opinion," says Dennis Bilter, senior director of marketing at Ciena. As for assertions that Tellium's gear may be more intuitive in managing core links, he asks: "Do you really think carriers would buy switches from us for their core networks if they were more expensive?"

And Bilter says "many customers" are using Ciena's switch in core applications, which speaks to his argument with RHK's approach to sizing the market. "I don't know where they're getting their categories. If you look at a scorecard of carriers buying switches and look at who they're buying from, at the wins and losses, you'll get a good indication of what's happening," he asserts. Right now, Bilter maintains, Ciena has 19 confirmed carrier customers. "And the list isn't declining."

In time, the numbers and customers would have to confirm whether Tellium is indeed stealing business from Ciena. Right now, such evidence is difficult to document. Despite better-than-expected quarterly results and stock lockups that exhibit management confidence (see Tellium Stock Pops After Earnings and Tellium Execs Lengthen Their Locks), just two customers are generating revenue for Tellium -- Dynegy Inc. (NYSE: DYN) and Qwest Communications International Corp. (NYSE: Q).

Harry Carr is standing by claims that more announcements will be coming forth before year's end. "There's no change to that guidance," he says.

— Mary Jander, Senior Editor, Light Reading
http://www.lightreading.com