Tellabs Kills Its Verizon GPON Efforts

Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA) has decided to cease all of its GPON (Gigabit PON) activities focused on its biggest customer, Verizon Communications Inc. (NYSE: VZ).

The company cited "economic reasons" for its decision, saying the move "serves the best interests of both companies and their respective stakeholders." (See Tellabs Ceases GPON.)

Tellabs stressed, though, that it is not abandoning the GPON market altogether. In its official statement today, the vendor noted it will continue selling BPON (Broadband PON) and other products to Verizon and will continue its GPON efforts elsewhere.

The vendor tells Light Reading it will now focus its GPON efforts on independent operating companies (IOCs) and the international market.

The news pleased investors, many of whom have had concerns about the viability of the Verizon GPON engagement: Tellabs saw its share price rise by $0.17, more than 3 percent, to $5.65 in early trading Wednesday.

A Verizon spokesman said Tellabs had been looking to renegotiate the price and deployment details of the GPON deal, first announced in July 2006, but the two sides could not reach an agreement. (See Alcatel Joins Verizon PON Party.)

"We couldn't reach a middle ground. We'll keep using Alcatel-Lucent (NYSE: ALU) and Motorola Inc. (NYSE: MOT)," said the spokesman, referring to Verizon's other two GPON vendors.

The decision comes as Tellabs finds its access business on thin ice. It lost its fiber-to-the-curb (FTTC) business in the BellSouth territories when AT&T Inc. (NYSE: T) scrapped the project, and has seen its BPON orders with Verizon slip as the company shifts towards GPON. (See Tellabs's Access Biz Under Fire.)

With most of Verizon's GPON business going to Alcatel-Lucent, Tellabs has decided that trying to sell GPON to Verizon was doing more harm than good.

Not everyone thinks that chasing Verizon GPON is a lost cause, though. Tellabs' decision comes just as Adtran Inc. (Nasdaq: ADTN) announced it is entering the GPON market with a view to winning a significant portion of Verizon's GPON business. (See Adtran Adds GPON.)

— Raymond McConville, Reporter, Light Reading

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rahat.hussain 12/5/2012 | 3:44:26 PM
re: Tellabs Kills Its Verizon GPON Efforts This is probably the best move TLAB has ever made.

Wonder how long it will take for other vendors to follow suit. ALU, MOT, are you taking cues?

About time someone stood up for positive gross margins!

Raymond McConville 12/5/2012 | 3:44:25 PM
re: Tellabs Kills Its Verizon GPON Efforts I agree and clearly so does wall street. TLAB was up 5 percent today on a day where all the majore market indices were down
hyperunner 12/5/2012 | 3:44:25 PM
re: Tellabs Kills Its Verizon GPON Efforts Hi odo,
I'm with you buddy.

I think service providers sometimes get carried away with squeezing the last ounce of margin out of their suppliers. There's such a thing as a sustainable relationship.

ponguy 12/5/2012 | 3:44:24 PM
re: Tellabs Kills Its Verizon GPON Efforts I agree with the view here and in Phil's Blog that it was a bold move, if you can not see a path to make $ and are in poor product position then maybe it is best to walk away.

What I wonder is how Tellabs took the winning AFC solution, 3+ years of almost 100% market share, plus the head start and customer insight that comes with that position and managed to lose it all?
Raymond McConville 12/5/2012 | 3:44:23 PM
re: Tellabs Kills Its Verizon GPON Efforts The loss of the Bellsouth business was less Tellabs' fault and more just another example of SBC doing what it always does and imposing its incumbent technologies and vendors on its new territories.
busted 12/5/2012 | 3:44:23 PM
re: Tellabs Kills Its Verizon GPON Efforts So, does this provide leverage to the remaining GPON suppliers? Will this market become healthy again (from a cost perspective)?
paolo.franzoi 12/5/2012 | 3:44:23 PM
re: Tellabs Kills Its Verizon GPON Efforts

That was on top of the loss of the BellSouth business.

rahat.hussain 12/5/2012 | 3:44:22 PM
re: Tellabs Kills Its Verizon GPON Efforts One should not expect any GPON suppliers to be giddy at the demise of TLAB. All of them should be introspective and wonder about the grand revenue plans they sold to their boards and take a real close look at whether VZ will ever let them turn profitable.

Which brings me to the real issue at hand: Large Tier-1 carriers has always squeezed their vendors on pricing but there was a semblance of a chance that with aggressive cost-reduction, the OEM could turn some profits in Y3-5.

The carriers now continue to squeeze upfront and then dump their loyal suppliers around Y3-5! Now if they did that because of the emergence of a radically new technology, or lack of performance or support from the incumbent, one can understand the business rationale. But simply to squeeze out the last dollar and switch to an unknown supplier?

The carriers will feel the impact of their procurement strong-arm tactics only if other suppliers learn their own, i.e., walk away from loss-making opportunities.

Otherwise this growing oligopsony will eat away at the profits of the entire food chain.


p.s. I guess I didn't say anything new, but feels good to vent anyway! :-)
rjmcmahon 12/5/2012 | 3:44:20 PM
re: Tellabs Kills Its Verizon GPON Efforts This isn't a market force at work. This is a force of FCC "deregulation" combined with the fantasy of facilities based competition hitting a stone cold reality. This fantasy is about as legitimate as the 1996 Telco Act.

Reminds me of Yann Martel's book Life of Pi. We all ultimately pick our stories in which contain our beliefs. Many times the story can be more fun than reality (and drive some LR page views to boot!) Like Pi, I'd prefer to pick my own story rather than have the FCC and a bunch of free market ideologues shove some nauseating bullshit down my throat. The bullshit ultimately just gets us sick and the Doctors wonder why are breath smells so bad ;-)

What's the next story we'll choose? My preference is that we pick one that actually motivates behaviors which modernize our access networks.
rs50terra 12/5/2012 | 3:44:19 PM
re: Tellabs Kills Its Verizon GPON Efforts With VZ deploying video using RF overlay, one may wonder why would they need GPON at all? BPON seems to be a good enough solution for data services. Could that have been a ploy to get ALU in?
If cost was the main consideration and Ethernet services are the main driving feature, they could have used EPON. Any thoughts?
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