Redback was the surprise winner, alongside less surprising Alcatel (NYSE: ALA; Paris: CGEP:PA), in a recent deal to upgrade BellSouth's access network (see SBC's IPTV Still up for Grabs). Alcatel won the IP DSLAM piece of the project, which involves preparing BellSouth for IPTV offerings; Redback's SmartEdge Service Gateway was chosen as the broadband remote access server (B-RAS).
Granted, BellSouth already uses Redback's products, giving the vendor the advantage of incumbency. But it's been years since never-profitable Redback has looked like an up-and-coming powerhouse. The company went through a financial reboot last year in a bankruptcy reorganization that wiped out debt but also slashed the equity held by prior shareholders (see Redback Closes a Chapter, Redback Sees End to Red Ink, and 2004 Top Ten: Stock Gains & Pains).
Even from the outside, one is reminded of Redback's crash: Two of its formerly leased buildings near a freeway in north San Jose, Calif., remain distinctly empty.
The BellSouth deal "breathed some new life into Redback," wrote analyst Mark Sue of RBC Capital Markets in a recent report. Sue believes revenues from the deal should start pouring into Alcatel and Redback in the fourth quarter of 2005.
Sue noted his firm was "previously concerned" about Redback's ability to keep up with competitors, Alcatel in particular. "It now seems Alcatel did not have a compelling enough solution to displace an incumbent product at BellSouth."
Neither Redback nor BellSouth would comment on the factors that triggered the deal, although Redback's incumbent status certainly helped. BellSouth also might have liked Redback's focus on Ethernet-based broadband, as opposed to ATM-minded architectures.
"Essentially, this replaces separate ATM, Sonet, SMS, and IP edge boxes with a single Redback router located at local COs integrating B-RAS, Ethernet, and IP," wrote analyst Steve Kamman at CIBC World Markets in a recent report. "This is similar to architectures already deployed in Asia, but we believe BellSouth is taking it a step further."
Redback's IP interest, in particular, probably played a role in BellSouth's decision, says analyst Mark Seery of RHK Inc.: "That [BellSouth] went with a product that does routing and is not just an Ethernet aggregator is an indicator of how they're thinking about architecture."
Then there's the nature of the deal. When SBC Communications Inc. (NYSE: SBC) put together its plan for delivering video, it opted to hire a systems integrator, a role Alcatel will fill (see Mais Alors! Alcatel Bags $1.7B SBC Deal ). But BellSouth intends to handle its video buildout by itself, freeing the carrier to look at vendors such as Redback, sources say.
Small things pushed Redback forward, too. Sources note, for instance, that Redback's ability to provide session-level reliability -- restoring individual sessions if a path goes down -- was a factor in the BellSouth win. Other vendors have similar features -- most notably, Laurel Networks Inc., which was in contention with Redback for the contract. Redback's incumbency probably helped break that tie, one of the sources says.
Besides Laurel's ST routers, the products Redback beat out include Cisco Systems Inc.'s (Nasdaq: CSCO) 10000 series, the Juniper Networks Inc. (Nasdaq: JNPR) ERX line, and Nortel Networks Ltd.'s (NYSE/Toronto: NT) MPE 9000, according to CIBC's Kamman. Speculation is that Nortel is feeling the pain more than the others, because the MPE 9000, a multiservice edge (MSE) router, reportedly was built with BellSouth in mind.
"[The Redback win] casts further doubt on the prospects for Nortel's MPE 9000 Neptune edge router," Kamman writes, calling the deal a "possible deathblow" to the product.
Not so, says Nortel. "BellSouth is very much a viable customer for the MPE," a Nortel spokeswoman wrote in an email to Light Reading. "We are actively talking to BellSouth as well as other service providers about the MPE 9000 and MSE functionality overall."
This particular deal was targeted more at a B-RAS than a multiservice router anyway, targeting functions such as "termination of subscriber management," the spokeswoman noted. "The Redback solution and Nortel MPE solution address two different portions" of the network, she wrote.
— Craig Matsumoto, Senior Editor, Light Reading
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