Is AT&T Finished With Tellabs FTTC?

AT&T Inc. (NYSE: T) is reportedly ready to discontinue purchasing the Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA) fiber-to-the-curb gear it had been deploying in the Southeastern U.S. in favor of Ericsson AB (Nasdaq: ERIC)'s fiber-to-the-premises platform.

In a note to clients this morning, Morgan Keegan & Company Inc. analyst Simon Leopold writes that "channel checks indicate that AT&T has plans to deploy Ericsson FTTP gear in applications previously slated for Tellabs, and may even rip and replace deployed Tellabs access platforms."

Speculation that AT&T would move away from Tellabs has existed ever since it was first announced that AT&T would be acquiring BellSouth.

At the time, BellSouth had been deploying Tellabs gear for its FTTC project, but AT&T's SBC legacy was known for instilling its incumbent vendors in its newly acquired territories. (See Will AT&T Value BellSouth's Vendors?, Wall Street Frets About BellSouth Suppliers, Ma Bell Merger Thumps Tellabs, and AT&T Vendors Sing Merger Blues.)

Furthermore, AT&T's fiber strategy doesn't include FTTC deployments, as it is mainly using FTTN in existing neighborhoods and FTTH in greenfields. Ericsson recently gained exposure to AT&T by winning part of its greenfield business as one of its GPON partners. (See AT&T Picks GPON Players.)

While losing a Tier 1 customer like AT&T is certainly a blow, Leopold doesn't feel it will have a significant impact on Tellabs' earnings per share since much of its FTTx sales come from its strong relationship with Verizon Communications Inc. (NYSE: VZ). Tellabs sales of FTTP gear to Verizon are on the upswing, according to Leopold.

Tellabs would not comment on the situation, while AT&T and Ericsson did not immediately respond to requests for comment.

— Raymond McConville, Reporter, Light Reading

alcaseltzer 12/5/2012 | 3:49:29 PM
re: Is AT&T Finished With Tellabs FTTC? I think the Tellabs FTTC product in question is the old Marconi NA Division product, which found it's way to Tellabs by way of AFC?

Anyone have an indication of how much BellSouth/SBC/AT&T spent on the product from 2004 when AFC bought it until now? <$500M I would guess?
bollocks187 12/5/2012 | 3:49:27 PM
re: Is AT&T Finished With Tellabs FTTC? Well that would be RelTec products - which AFC bought (another big mistake for by them)

Reltec has some good people but product was outdated. AFC spent years trying to displace the product in Bellsouth but it was very cheap and did what BS wanted - however it had no future. Not sure of the actual revenue but did not justify the purchase price circa $240Million cash. Also Bellsouth changed network requirements to more of Ethernet backhaul FTTC offering in 2004 and Retlecc was much TDM based.
alcaseltzer 12/5/2012 | 3:49:24 PM
re: Is AT&T Finished With Tellabs FTTC? I had heard at the time (but never confirmed) that BS was planning to spend upwards of $120M with Marconi in 2004. I presumed that AFC justified the rich valuation for Marconi NA/Reltec on the projected BS revenues and to be in a position for the joint FTTx RFP that came down the pipe.
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