Optical/IP Networks

Ciena Lands $200M Deal With McLeod

McLeodUSA (Nasdaq: MCLD) will spend $200 million over two years to buy several of Ciena's optical networking products, both companies announced this morning (see Ciena, McCleod Close $200M Deal).

McLeodUSA is an unprofitable emerging CLEC (competitive local exchange carrier), which means it's a notch below the trophy customer on the financial level. But the deal represents a significant win for Ciena Corp. (Nasdaq: CIEN) on the technical level. The optical networking vendor beat several competitors to the deal, including Nortel Networks Corp. (NYSE/TSE: NT), Sycamore Networks Inc. (Nasdaq: SCMR), and Tellium Inc., which were all among the companies included in the original RFP, according to a McLeodUSA official.

McLeodUSA is based in Cedar City, Iowa. It primarily serves the Rocky Mountain region, offering voice and data services. It reported over $1.4 billion in revenue in 2000, but it is also largely unprofitable and in debt. The company lost $500 million during 2000.

On the technology side, the deal is important because McLeodUSA has opted to build a next-generation mesh backbone based on DWDM (dense wavelength-division multiplexing), rather than selecting equipment based on a Sonet architecture. Several Ciena products, including the CoreDirector switch, CoreStream transport product, and the LightWorks management system will be used to build the network, according to both companies.

"Ciena's technical maturity in the industry and the feature sets on their CoreDirector and CoreStream platforms were key selling points," wrote Robert Adams, director of network planning at McLeodUSA, in responding to questions that were emailed to him by Light Reading.

The deal is not exclusive, however, according to Adams. "McLeodUSA will not be put into a position of single vendor dependence." "For us, what's important is you have a carrier basing its network on a new mesh architecture instead of Sonet ADMs," said Denny Bilter, senior director of marketing with Ciena.

The deal was announced on the same day that Ciena raised a total of $1.5 billion in a combined debt and secondary stock offering (see doclink 3564). Ciena shares were trading down 2.00 (1.78%) at 83, in late afternoon trading.

-- R. Scott Raynovich, executive editor, Light Reading http://www.lightreading.com
Scott Raynovich 12/4/2012 | 8:56:25 PM
re: Ciena Lands $200M Deal With McLeod a full-mesh network... a good sign for DWDM?
Me 12/4/2012 | 8:56:25 PM
re: Ciena Lands $200M Deal With McLeod What exactly is a mesh network? Would a true mesh network eliminate the core?
ak 12/4/2012 | 8:56:18 PM
re: Ciena Lands $200M Deal With McLeod Does anyone know how much those switches that Ciena sold to McLeod went for...Also -- were they 25% populated as is the normal case....I know the deal was for $200M for 50 switches but the $200M also included WDM equipment and I don't know which portion of the $200M related only to the CoreDirector...Any info would be helpful...Thanks...
iprsvp 12/4/2012 | 8:56:13 PM
re: Ciena Lands $200M Deal With McLeod A very good question. An O-E-O switch
is going to cost you atmost 1M. So out of 200M
deal only 50M deal is for the switches. On the
top of it there is catch in the announcement.

"The deal is not exclusive, however, according to Adams. "McLeodUSA will not be put into a position of single vendor dependence."

--- So the rest of deal could be of worth more than 200M who knows...:).. We heard only the first
half of the McLeod story.
flanker 12/4/2012 | 8:56:07 PM
re: Ciena Lands $200M Deal With McLeod A mesh eliminates the SONET ring in the core. It does not elimiate the core, it is just a change in core architecture from a ring to a grid of interconnnected point-to-point routes.
opstar 12/4/2012 | 8:56:02 PM
re: Ciena Lands $200M Deal With McLeod flanker, or anyone else:

Could you tell me, when evolving from ring based SONET to mesh structure, what the technological challenges are? I heard something, such as auto-discover mechanism, restoration, and wavelength relocation, etc. What is indeed impact the process of evolution, and who (vendors) are doing a good job?

Thanks a lot!
optinuts 12/4/2012 | 8:56:00 PM
re: Ciena Lands $200M Deal With McLeod as always, the answer is multi-layered.

its a question of changing out ports on the equipment that is providing ring switching to a different switching criterion. i suppose you would do it in stages, ie remove nodes from a ring and put them in a mesh configuration around the same fiber links. then its a matter of implementing the mesh protocols such as OSPF etc over the mesh network.

as to who does it best, most newer players don't do rings well. most incumbents don't do mesh well.
time will tell.
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