Juniper Still Working Verizon Deal
But there's a catch: The deal is likely to be worth far less than first thought and isn’t expected to generate any revenue for Juniper until the second quarter of next year.
Such a contract would be important in affirming the value of Juniper's acquisition of Unisphere in June (see Juniper Nabs Unisphere for $740M, Juniper Acquires Unisphere, and What to Expect From 'Junisphere'). Juniper bought Unisphere for its edge-routing technology, in part because Verizon was interested in it (see Unisphere Close to $200-300M Deal?).
The deal with Juniper would likely include the Unisphere ERX platform, which will handle both subscriber management and edge IP routing. Some people say Verizon is also looking at deploying Juniper’s M5 router in smaller points of presence where core routing functions are needed, but where volumes are not high enough to warrant a larger router such as an M40 or M160.
Juniper had not returned calls by press time. Verizon declined to comment, though officials didn't exactly throw cold water on the idea.
“There is nothing to comment on yet,” says Mark Marchand, spokesperson for Verizon. “It doesn’t exist yet. It’s public knowledge that we are planning to move from a packet infrastructure to an IP one, but we haven’t talked about the details of that yet.”
A locked-in relationship with Verizon would be an important step forward for Juniper, yet observers say the ongoing telecom slump is likely to take a toll on the final numbers.
Industry analyst, Frank Dzubeck, president of Communications Network Architects Inc., notes that the multihundred-million-dollar contracts of the boom-times are a thing of the past.
“Nobody does deals like that anymore,” he says. “This will be a piecemeal deal. One part of the project will get a contract and then you follow that with a different contract.”
On Wall Street, analysts weren't eager to factor any big numbers from the deal into their forecasts.
“I don’t know if the deal is complete yet,” says Alex Henderson, an analyst with Salomon Smith Barney. “But I can almost guarantee you that the scale of the contract is a lot smaller than the $150 and $200 million people have been talking about recently.”
Henderson adds that he expects the contract to be rather insignificant, bringing in only about $5 million to $10 million a quarter rather than the $20 million to $30 million for which some optimistic investors had hoped.
Also, Juniper likely won’t be the only vendor invited to Verizon’s IP party. As Verizon typically does, the carrier will likely dual-source its gear. Specifically, it’s expected to deploy Cisco Systems Inc. (Nasdaq: CSCO) routing gear for both edge and core routing.
A source within the carrier has confirmed that serious talks have been going on between the companies but no decision has been finalized. Juniper is unlikely to receive a significant portion of revenue on the deal in the third quarter.
Verizon, like other carriers, has continued to cut spending. While the carrier says it will spend a total of $9 billion on wireline gear this year, it’s hard to tell how much of that has already been spent and how much more is likely to come in the last quarter. Earnings warnings from companies like Lucent Technologies Inc. (NYSE: LU), Nortel Networks Corp. (NYSE/Toronto: NT), and Redback Networks Inc. (Nasdaq: RBAK) indicate that carriers are continuing to cut back (see Carrier Spending Hopes Dim, Nortel Lowers Q3 Forecast, and Redback Warns)
For Verizon, in particular, a lot of the recent cost cutting has to do with the fact that the company is in the midst of trying to reduce its $59 billion debt burden. The company is working hard to avoid getting its debt downgraded, which makes conserving cash all the more important.
Some in the industry even speculate that the cost-cutting mindset has trickled down to middle management, as carriers are said to provide incentives to managers not to spend any money before next year. Traditionally, bonuses in most carrier organizations were allocated based upon how much money a given implementation saved the company. But now some say that has shifted and bonuses are being doled out based upon how little money is spent.
“In difficult times where you are trying to reduce expenditures, how much you don’t spend is as important as how much you save,” says Sam Greenholtz, an analyst with Communications Industry Researchers Inc., who used to work for Verizon.
“I’ve heard about this. Carriers have been moving in this direction,” says Salomon Smith Barney's Henderson. “Obviously, it factors into the current crunch. Everyone is cutting back on spending -- enterprise, carriers, everyone.”
Verizon and other regional Bell operating companies (RBOCs) may also be holding off spending on projects like building out IP networks as they wait for regulatory issues to be worked out. Currently, the Federal Communications Commission (FCC) is reviewing all of its rules to determine which elements of a network should be opened up to competitors and which shouldn’t. Much of this depends upon how the services are classified. Decisions from the FCC and other congressional action are expected to happen in early 2003.
— Marguerite Reardon, Senior Editor, Light Reading