AFC/Verizon Glitch Alleged

Is Advanced Fibre Communications Inc. (AFC) (Nasdaq: AFCI) experiencing technical difficulties at Verizon Communications Inc. (NYSE: VZ)?

That’s what one analyst is saying in a note sent to clients this morning. And the mention of AFC having trouble at Verizon, where it has an agreement to supply equipment for the carrier’s fiber-to-the-premises (FTTP) buildout, helped send AFC’s shares down $1.40 (5.68%) to $23.23 in mid-afternoon trading on Tuesday (see AFC Finalizes Verizon FTTP Contract).

“We believe AFCI is experiencing difficulties meeting Verizon’s technical specifications, causing dissatisfaction among some of Verizon’s employees,” writes Pacific Growth Equities Inc. analyst Joe Noel. “We believe this current dissatisfaction with the AFCI solution has caused Verizon personnel to ask Alcatel SA (NYSE: ALA; Paris: CGEP:PA) to update and reissue its bid for this lucrative FTTP contract.”

Verizon's initial FTTP deployment plans involve passing about 1 million homes with fiber this year and potentially doubling the deployment pace in 2005 (see How Big Is FTTP for AFC? ).

Noel didn’t say specifically what the technical problems are, but he goes on to make two points regarding AFC’s arrival at Verizon. First, he says it’s widely believed that AFC designed its FTTP solution over the period of a few months -- “a very short and potentially inadequate product development cycle, in our view.” (See AFC Comes Clean on FTTP .)

Also, Noel notes that competitive pricing helped AFC rise above Alcatel in the initial product consideration (see FTTP Bidders Slashing Prices?).

Noel concludes that AFC hasn’t lost the spot as Verizon’s top supplier, but the possibility is there if it doesn’t resolve its technical troubles soon.

Verizon declined to comment. So did AFC, but more verbosely:

“AFC doesn't comment on rumors or 'possible scenarios' regarding our business and our relationships with our customers,” wrote an AFC spokesman in an email to Light Reading. “The facts are these: AFC is Verizon’s provider of central office and premises electronics for their network upgrade to FTTP. We have signed a five-year agreement with Verizon and, as publicly stated, we are in lab trials now and expect field trials to begin in the coming months.”

— Phil Harvey, News Editor, Light Reading