Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA) today acknowledged that it has at least one RBOC trialing its 6400 metro transport switch.

The fact that an incumbent is kicking the tires is good news for Tellabs' optical networking business. Since Tellabs' last earnings call, industry observers have speculated which seven unnamed carriers bought Tellabs 6400 switch last quarter. The company's only announced customer to date is Broadwing Inc. (NYSE: BRW).

The attention around the 6400 switch is merited because the platform is seen as a transition between the large electrical crossconnects of Tellabs' past and the smaller, sleeker optical networking gear of its future.

The 6400's success is also pertinent now that Tellabs is experiencing a pronounced slowdown in its overall business, which would appear even worse had it not been for a recent uptick in 6400 sales. The company has restructured five times since April 2001 and recently reported its first pro forma quarterly loss since 1991. Not only are overall sales declining, but the percentage of its sales from optical networking gear -- a segment that includes the 6400 -- is also slipping.

In the third quarter, Tellabs reported revenues of $288.1 million, with about $115 million, or 39 percent, coming from optical gear (see Tellabs CEO Sees 'Tough Sledding'). During the second quarter, Tellabs' revenues were $345 million with $162 million, or 46 percent, of its revenues coming from optical gear.

However, sales of the two newest optical networking products -- the 6400 and 6500 switches -- accounted for 9 percent of Tellabs' total second-quarter 2002 revenues. So even as the overall picture gets bleak, the company appears to be increasingly betting its future on selling the gear it acquired from Ocular Networks to big carriers.

Tellabs has said the key market for its 6400 is the smaller metro points of presence controlled by big incumbents. The seven new revenue-generating customers for the 6400 are "a mix of local exchange carriers, multiple systems operators, or the cable companies, as well as competitive local exchange carriers," the company says. This makes the news of RBOC trials all the more interesting.

Having just completed the Osmine certification process, it was expected that Tellabs would pick up its activity around RBOC sales.

Some startups weren't biting on the news, however. Upstart competitor Polaris Networks points out that it has already announced an RBOC trial, so it would almost be embarrassing if Tellabs didn't follow suit (see Polaris Lifts Off).

"By now I would have expected them to have several customers, given how long they've been in the market," says Sab Gosal, director of product marketing at Polaris.

— Phil Harvey, Senior Editor, Light Reading
www.lightreading.com

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