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Optical/IP

Cisco & AlcaLu vs. 'Buy American'

9:40 AM -- Alcatel-Lucent (NYSE: ALU) and Cisco Systems Inc. (Nasdaq: CSCO) are none too happy about the "buy American" movement, as noted in a Bloomberg article Wednesday.

Both companies have been bugging the NTIA about it, as you can see on this page of comments.

It's all part of what's probably going to be a protracted fight over the $7.2 billion pool created by the American Recovery and Reinvestment Act (ARRA). (See FCC Boots Up National Broadband Plan .)

In a letter dated April 2, Mory Ejabat, CEO of Zhone Technologies Inc. (Nasdaq: ZHNE), warned the NTIA that large chunks of stimulus money could go toward supporting jobs in other countries, since nearly all manufacturing is outsourced. Guess which tech company does its manufacturing on U.S. soil. (See Zhone Says 'Buy American'.)

The Bloomberg article note that AlcaLu and Cisco are asking the NTIA to exempt ARRA funding from any buy-American provisions. AlcaLu, in repeated comments, points out that construction labor constitutes 70 to 90 percent of the cost of broadband installation (or even 95 percent, depending which comment you read). Zhone came up with a much smaller figure, claiming 80 percent of the expense is labor but saying that that figure includes manufacturing costs.

Meanwhile, Cisco recently argued that service providers get "virtually all broadband electronics equipment" from U.S. subsidiaries of foreign companies or U.S.-based value-added resellers, or directly from a U.S. company to begin with. So, pretty much any broadband equipment purchase will benefit some U.S. entity, Cisco claimed.

The deeper you dig, the messier this is going to get. Even Zhone must be using chips and other components manufactured in Asia -- does that count as non-American content?

I've spoken to a few vendor executives who speculate that the real job creation intent behind ARRA has little to do with equipment purchases and everything to do with laying down new fiber -- highly visible work that can't really be outsourced. That's probably going to have to take a back burner to the manufacturing issue, though -- especially since the Communications Workers of America (CWA) is hot under the collar about the issue, according to Bloomberg.

— Craig Matsumoto, West Coast Editor, Light Reading

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