Analysts See Tellabs Win at BellSouth
BellSouth has already announced that it will use Alcatel's (NYSE: ALA; Paris: CGEP:PA) 7330 IP DSLAM and 7302 Intelligent Services Access Manager devices for some parts of its access network. But, so far, the FTTC piece has been up in the air (see Alcatel, Redback Score at BellSouth).
On Monday, Smith Barney analyst Alex Henderson, in a note to clients, wrote that Tellabs, already a supplier to BellSouth, will supply a newer FTTC device to BellSouth and that revenues from that customer "will not be at risk and may even grow on a quarterly basis beginning in 2006."
Morgan Keegan & Company Inc. analyst Simon Leopold also fronted Tellabs as the winner of BellSouth's newest bit of FTTC business in a March 22 note. That bulletin was an update on an early Leopold note to the effect that Tellabs "leads but has not won FTTC at BellSouth."
The big loser in all this could be Ciena, which was seen as Tellabs' biggest competitor for the BellSouth FTTC business. "We believe Ciena expected to win about 20 percent of the overall FTTC deal and increase its penetration in BellSouth's copper rehab projects," writes Henderson. "Instead it looks like Ciena will be locked out of FTTC and the existing Catena line card sales to BellSouth could be at risk."
Leopold's assessment wasn't quite as damning. "Although Ciena may have lost, we suspect it will be on the sidelines looking for the opportunity to get back in should Tellabs falter," he wrote on March 22.
A loss to Tellabs in BellSouth does put Ciena's broadband access group in an awkward spot.
As for Catena, it's entrée into incumbent networks -- and its first product sold to BellSouth -- was its CNX-5 card, which delivers two lines of plain old telephone service (POTS) and two lines of ADSL services on any copper pair. Carriers use such a card to add DSL services to their standing networks without tearing out any old boxes or losing any of their POTS lines. Indeed, that foothold no doubt made the company attractive to Ciena, which bought Catena 13 months ago (see Ciena to Buy Catena).
More so, the reported win is a relief to Tellabs which bought its way into BellSouth's FTTC business via the acquisition of AFC, which, in turn, had just purchased Marconi Corp. plc's (Nasdaq: MRCIY; London: MONI) North American Access group (see Tellabs & AFC: Together at Last! and Access Acquisition Boosts AFC).
In other access network opportunities, specifically, fiber-to-the-node networks that require IP backhaul, Tellabs has required the use of outside help -- even a competitor -- to help improve its chances (see Tellabs Teams With Occam).
"Incumbency tends to trump technology," says Stuart Benington, Tellabs' director of portfolio marketing.
Leopold says BellSouth had over 1 million FTTC subscribers at the end of 2004, and could add between 150,000 and 200,000 more in 2005. He writes that the opportunity could be worth about $160 million to Tellabs this year: "Although an important win, our '05 estimates already reflect at least $160 million in FTTC sales to BellSouth and breakeven earnings."
Tellabs won't comment directly on what the analysts are reporting, except to say that it can't talk about "ongoing evaluations" that its customers are making. Ciena did not respond to requests for comment.
— Phil Harvey, News Editor, Light Reading