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Optical/IP

Lucent Gets a Shot in the Arm

Lucent Technologies Inc. (NYSE: LU) announced two contract wins today: a $1 billion five-year contract with SBC Communications Inc. (NYSE: SBC) and a $180 million two-year deal with Eletronet, a broadband service provider in Brazil.

These are major wins for Lucent. For one thing, they demonstrate that even with its recent run of management and financial problems, the vendor can still run successfully against rivals like Nortel Networks Corp. (NYSE/Toronto: NT) in helping key carriers with next-generation broadband buildouts. (Nortel won its own big contract with Cable and Wireless [NYSE: CWP] last week -- see C&W Bets $1.4 Billion on VOIP.)

"I think this helps Lucent significantly, not just in terms of raw revenues but also in terms of mindshare and morale," says Steve Byars, director at Current Analysis, a market research firm. He says he's impressed by the amount of equipment involved in the deal, and also by the fact that the network buildout already is underway. "This doesn't look like a case where the network is announced, then the carrier tries to find customers," he says. "They're clear that they're going to build it, and customers will come."

The deals also demonstrate a wise strategy on Lucent's part -- namely, leveraging its key strength. "This is Lucent doing what it has always done best: be a full service partner for major carriers," says Scott Clavenna, president of PointEast Research and director of research at Light Reading. "Lucent's one of two or three companies that can support a contract like this with such a broad range of products."

For the SBC contract, which is exclusive, Lucent will use a range of its mainstream telephony products to enable SBC's rollout to 30 new U.S. markets by the third quarter of 2001, including nine cities by year's end. Among the products Lucent will use are the 7R/E Packet Solution, AnyMedia Access Systems, GX 500 and CBX 500 Multiservice WAN switches, and numerous software tools for managing and provisioning the network. Lucent also will combine these products, SBC says, in a new platform that also will be sold outside SBC. SBC will continue to use Sonet gear from Fujitsu Ltd.(KLS: FUJI.KL) for the buildout.

For Eletronet, Lucent plans to provide its WaveStar 400G DWDM (dense wavelength-division multiplexing) system in a backbone buildout for broadband services covering more than 100 Brazilian cities. The deal is nonexclusive, spokespeople say.

Lucent's stock rose modestly on the news. Its share price had risen about a point by midafternoon to $33.75.

Despite praise for the deals, analysts say there are downsides. For one thing, while significant, they clearly aren't sufficient to reverse negative trends at Lucent -- at least not on their own. And some analysts downplay Lucent's triumph with SBC, saying the vendor already has an "in" with the carrier.

In fact, today's deal isn't the first with SBC. The two signed a similar billion-dollar agreement in July of 1998 for 5ESS and AnyMedia gear. Given that it's three years later, some observers think SBC's gotten the better end of things. "I'd expect SBC would have driven a hard bargain, given Lucent's present state," says Mark Lutkowitz, president of consultancy Trans-Formation Inc..

Lutkowitz says he's surprised that, given a choice, SBC would go with a player that's in trouble but established, rather than with new vendors and new technology that could mean a bigger win in the long run. "SBC is showing that it's staying in the traditional RBOC mode, regulated or unregulated," he says.

But SBC says it chose Lucent strictly on the basis of its ability to address the carrier's needs, period. Past relationships and a Bellhead mentality didn't come into it. "This contract is for our outer-region network; it's a greenfield effort," says Tim Harden, VP and general manager of network operations at SBC. "Did we consider the installed base in other parts of the network? Not at all. We spent over a year evaluating all emerging and established vendors." In the end, Lucent was the best choice in terms of scaleability, integration among products, technology, and its ability to support high-volume traffic with a range of operationg systems, he says.

The consensus seems to be that Lucent's done well with these contracts, showing a refreshing aim in the right direction. "They don't have to win the optical race if they can continue to gain contracts that leverage their complete portfolio rather than a single leading-edge product," says Clavenna. "They needed this in a big way."

-- Mary Jander, senior editor, Light Reading http://www.lightreading.com

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