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Optical/IP

Ciena's BT Coup: How Big?

Ciena Corp. (Nasdaq: CIEN) announced this morning that it's scored a contract with British Telecommunications plc (BT) (NYSE: BTY; London: BTA) to help build a "next generation network."

The value of the three-year deal wasn't provided, but it places Ciena in the role of "a strategic supplier of optical transport and switching equipment and network management software," according to Ciena's press release (see Ciena Scores With BT).

Ciena says its LightWorks architecture has been selected for live deployment in next-generation networking rollouts at BT. Products included on the approved list include Ciena's CoreDirector, CoreStream, Online Metro, Online Edge, MetroDirector K2, and OnCenter Management System.

On the face of it, big news for Ciena -- and a major blow for Marconi plc (Nasdaq/London: MONI), which in the past has made a big thing out of its monster contract with BT to supply optical gear, a deal that extends through 2006 (see Marconi wins $3+ Billion Contract and Marconi to Supply BT Network).

But on closer inspection, the deal may not exactly be all that. For one thing, BT's playing it down. No figure has been given for what BT will buy from Ciena, and this contract is no guarantee of any sales. Rather, according to BT spokesman David Orr, the agreement means Ciena's gear has made it onto BT's approved list of suppliers, along with several others with similar "framework" agreements, including LM Ericsson (Nasdaq: ERICY), Lucent Technologies Inc. (NYSE: LU), Nortel Networks Corp. (NYSE/Toronto: NT), and Marconi.

"There's nothing exclusive about this agreement," Orr says. "It's not unusual."

Further, while Ciena and BT agree that Ciena's in line to help supply BT's next-generation network, Orr won't say what that means. Like any other carrier, BT upgrades and maintains its network regularly, he says, so no biggie if Ciena's on the list of many whose gear may be used for the purpose.

The jury's also out on whether the deal is truly a blow to Marconi, which for the past couple of quarters has earned about 20 percent of its revenues from BT sales, particularly in the SDH arena, where Ciena isn't a major player. What's more, Marconi has downplayed the role of DWDM on future networks (see Mike Parton, Marconi), indicating that it's not a key area for Marconi anyway.

"We remain a strategic supplier to BT in core optical transmission and other parts of its business," says Marconi spokesman Joe Kelly.

Analysts think the deal may be a nudge to Marconi. "This may be an insurance policy for BT," says Sam Greenholtz, principal at Telecom Pragmatics Inc., a consultancy. He says BT continues to think highly of Marconi, according to his sources, but the carrier has reservations about relying so heavily on it, given its continued restructuring. What's more, Marconi may not be able to offer a low enough price to BT, spurring a hardball play.

BT's Orr says price is always an issue in choosing a vendor, as is product quality and the ability to deliver and support products.

Not surprisingly, Ciena's quite hyped about the deal. Spokesman Denny Bilter says Ciena's been working with BT on this for awhile, and that the agreement is for live deployment in the carrier's network, which should result in revenues in Ciena's fourth fiscal quarter that starts in August.

Financial analysts seem divided. "I think this is a very big announcement," says Timm Bechter, broadband equipment analyst at Legg Mason Inc. It will have a major influence on other incumbent carriers that may be considering Ciena, he thinks, particularly since BT is interested in a range of Ciena products.

Bechter calculates the deal to be worth "no less than $160 million," based on what sources have told him of other Ciena deals. He's modeling for revenues to come from the deal in 2004, but thinks there's a fairly good chance they might show later this year.

Others are far less bullish. "In the current environment, any positive news is material. Is it big? Yes. Is it a positive step? Absolutely. Is it big enough to make a difference? No," asserts Steven Levy of Lehman Brothers. "Ciena is still two and half years away from profitability. I mean, we're talking about a company with a $700 million breakeven point." He maintains Ciena will need "a few more" wins like this to make a big dent.

Still, Levy concedes the win proves that Ciena's strategy to target big incumbent suppliers worldwide is working. It's nice for Ciena to add BT to a roster that includes AT&T Corp. (NYSE: T) and Teléfonos de México. And he says it will no doubt help make other incumbents sit up and take notice.

"Incumbents like to look at companies and say where else you are installed," he says.

The deal has been the subject of rumors circulating on Light Reading's message board since Ciena reported its last financial results in February (see Ciena: 'Flat to Up' and, in particular, this message). However, Light Reading was unable to substantiate the rumors at the time.

—Mary Jander, Senior Editor, and Peter Heywood, Founding Editor, Light Reading

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piltdownman 12/5/2012 | 12:08:09 AM
re: Ciena's BT Coup: How Big? This win by Ciena is an expected outcome of Marconi's near-meltdown, and it has been known for over a year that BT was desperately seeking to qualify a second vendor as protection against having to rely too heavily on Marconi.

The REAL losers are Lucent and Nortel, both of whom were gunning hard for that 2nd vendor spot for optical.

Surprising that with BT's CEO having come from Lucent that they lost out.

Sadly, the ABSOLUTE losers here are Nortel, who after acquiring STC years ago are continuing to see their UK presence get eroded away. Part of it is pathetic knee-jerk management by the likes of Pusey, and total ineptness by Newcombe who runs the UK optical business.

Sadly Nortel had actually announced a $500M optical contract with BT 3-4 years ago, but had to pull out because they couldn't compete on price.

This is one more nail in the coffin.
OpticalPhonon 12/5/2012 | 12:08:09 AM
re: Ciena's BT Coup: How Big? "Another nail"? What planet do you come from dweeb? Nortel just announced a profit and solid finances with billions in cash in teh bank. Stop posting if only satisfy your frustrations.

Nortel! Nortel! Nortel!
opticalphaggot 12/5/2012 | 12:08:08 AM
re: Ciena's BT Coup: How Big? Keep up the cheerleading. It's over! Deal with it!
dodo 12/5/2012 | 12:08:08 AM
re: Ciena's BT Coup: How Big? OPticalPhonon

Keep dreaming
Just analyze the P&L well
OEM
3e8 12/5/2012 | 12:08:07 AM
re: Ciena's BT Coup: How Big? Nortel is sucking wind in Europe.

They recently let ADVA win some big deals at BT for Metro WDM gear, a loss to Nortel's early Metro 5200 wins with BT Retail.

And Lucent pulled the rug from under them at Belgacom with a contract for Metropolis, even though Nortel had earlier won the Metro WDM project for the EU.

Piltdownman is right, Nortel is continuing its steady decline downwards. Newcombe does not know what to do except manage his career and internal conference calls, appoints people who know nothing about optical to key positions (G.T.), and gets rewarded with expanded responsibility in the process!
photon3000 12/5/2012 | 12:08:05 AM
re: Ciena's BT Coup: How Big? http://helping.apa.org/ should help you out.
photon3000 12/5/2012 | 12:08:05 AM
re: Ciena's BT Coup: How Big? specifically, what type of network is being built? were there any start-ups in the running? who stands to lose in start-up land?
opticalphaggot 12/5/2012 | 12:08:05 AM
re: Ciena's BT Coup: How Big? Look around you. Pretty much everyone around here is a loser, including yours truly. Sooner we all admit it, the faster we can move on with our lives and do something meaningful. Maybe like appreciating what we have and giving some time to develop the community around us. I'm sure that's what the rich people are doing. The difference is they get to choose which communities to develop because they got money flowing out of the wazoo. But what do I know? I'm a complete idiot who wastes bandwidth.
piltdownman 12/5/2012 | 12:08:02 AM
re: Ciena's BT Coup: How Big? OpticalPhonon wrote: "Nortel just announced a profit and solid finances with billions in cash in teh bank"

__________________________________

Not!

Nortel's profit was only due to profit from discontinued operations. If you read through the details you'd see they are STILL losing money from operations, and their CASH in the bank comes from DEBT.

And losing a major PTT customer is not going to do anything to help them get out of any ever-deepening hole. Their optical revenues dropped by 30% last quarter alone!
OpticalPhonon 12/5/2012 | 12:08:02 AM
re: Ciena's BT Coup: How Big? NOt NOt!

Nortel made money from operations. You and OpticalPhaggot are probably ex-Nortel employees that are upset at the company. Also, you show absolutely no class or professionalism by mentioning people's real names while you childlessly hide behind anonymity. Slander is illegal my friends.
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