Tellabs Teams With Occam
Tellabs has invested $2 million in Occam, and the two companies have agreed to a deal whereby Tellabs may manufacture and distribute Occam's broadband loop carrier to the nation's three largest phone companies and their subsidiaries, as well as several other big North American accounts.
The cash infusion concludes a funding round that Occam had left open in January. Besides the Tellabs investment, Occam's other investors forked over $2.9 million for additional Occam shares, per an earlier preferred stock purchase agreement. These investors include Alta Partners, U.S. Venture Partners, Norwest Venture Partners, and New Enterprise Associates (NEA).
The deal, which involves Tellabs Petaluma Inc. -- formerly Advanced Fibre Communications Inc. (AFC) -- appears to be confirmation that AFC didn't have all the answers its customers needed in the next-generation broadband loop carrier (BLC) market.
While AFC had plenty of firepower in the FTTP (fiber to the premises) space, it apparently didn't have as good a solution as Occam for delivering high-speed bandwidth over copper.
Occam's BLC is different than most in its class because, for one thing, it uses Gigabit Ethernet links to backhaul bandwidth, giving carriers cheap and cheerful connections. And carriers have been increasingly turning to Occam to help put fast Internet services on their copper networks. Earlier this month, incumbent carrier SureWest Communications (Nasdaq: SURW) said it would use Occam's BLC 6000 System exclusively to deliver its recently announced 3-Mbit/s DSL service (see SureWest Picks Occam).
Occam also has an edge in the IPTV arena, as its Intelligent Blade Interconnect technology (IBI) distributes switching and processing to every blade. In English, that means IPTV customers served from Occam's box don't have to wait long for channel changes. And the carrier benefits, too, as it doesn't have to send several copies of the same video stream all the way to a remote cabinet.
IBI blade technology "can be seen as useful in a network with IP video, as every port can process packets and can therefore participate in multicast, driving the process of joining a multicast as close to the customer as possible," writes Heavy Reading analyst Scott Clavenna, who assessed Occam's device last year in his report, Telco Triple Play: The DSL Imperative.
The upshot of all this is that, with a big partner like Tellabs, Occam can finally compete head-on with Calix Networks Inc., which has partnered with Nortel Networks Ltd. (NYSE/Toronto: NT), and Entrisphere Inc., which has partnered with Lucent Technologies Inc. (NYSE: LU), in some big accounts (see Calix, Entrisphere Sprint Forward).
Tellabs "may distribute and sell the BLC products that it manufactures only to an identified list of customers," including "companies affiliated with the following three regional Bell operating companies: BellSouth Corp., SBC Communications Inc., and Verizon Communications Inc.," states a Securities and Exchange Commission (SEC) filing made by Occam on March 24.
Of course, those carriers were named because Tellabs already has relationships with them. But the Tellabs-Occam agreement extends to other big operators as well. "In addition, the customer list includes five independent operating companies in the United States, certain regional telecommunications service providers in Canada, and certain Verizon subsidiaries in identified markets in the Caribbean and Latin America," the filing says.
The agreement between Occam and Tellabs spells out that Tellabs must "conduct a successful lab trial with each customer within 18 months to two years (depending on the customer) and enter into definitive written agreement to sell the BLC product to that customer within two to three years (again depending on the customer and when the lab trial is completed)."
On March 18, Occam also agreed to license Tellabs the use of its "gigabit ethernet switching and transport subsystems technology" for use inside Tellabs' FTTC products, the SEC filing states.
For Tellabs, the pairing with Occam is just a way to bundle a bigger solution for potential customers, rather than an endorsement of its business model. "We undertook this agreement with Occam for some specific IOC customers who had a couple of individual needs within a fiber-to-the-node architecture," says Stuart Benington, Tellabs' director of portfolio marketing.
Occam, understandly, is bit less reserved.
"We're very pleased with this arrangement," says Russ Sharer, Occam's VP of marketing. "Tellabs has clearly been the number one access equipment provider for many years."
Even without Tellabs, Occam's BLC looked to finally be coming into its own, given the company's last quarterly report. It reported $17.3 million in revenues for 2004, which isn't a staggering number, but is a nearly 120 percent jump over the $7.9 million in annual revenues it reported in 2003 (see Occam Gains in Q4).
Occam has scheduled a conference call on Wednesday, March 30, to discuss its financial results and, likely, to announce its Tellabs deal.
— Phil Harvey, News Editor, Light Reading