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Tellabs Feels the AT&T Squeeze

4:05 PM -- Being an AT&T Inc. (NYSE: T) domain supplier has its privileges. And not being one -- well...

Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA) stock is down 10 percent today and has "significantly underperformed" all week "on concerns its competitive position at AT&T is weakening due to lack of domain vendor status and the carrier's planned transition to LTE/4G," analyst Michael Genovese of Soleil writes in a report issued today.

AT&T makes up about 20 percent of Tellabs's revenues, with wireless backhaul being a good chunk of that, Genovese notes. As AT&T starts building for LTE, that backhaul business could be destined for Alcatel-Lucent (NYSE: ALU), he writes.

AlcaLu already has a pretty good position at AT&T. It's a domain supplier for routers and for LTE radio access, a combination that's led to more pre-LTE backhaul business for the vendor, Genovese writes. (See AT&T Picks AlcaLu, Ericsson for LTE.)

— Craig Matsumoto, West Coast Editor, Light Reading

paolo.franzoi 12/5/2012 | 4:33:18 PM
re: Tellabs Feels the AT&T Squeeze

Craig,


Why does anyone think the backhaul buildout going on now at AT&T is going to be retired for 4G?


seven


 

^Eagle^ 12/5/2012 | 4:33:16 PM
re: Tellabs Feels the AT&T Squeeze

Brook,


Well stated.  


Also what most of these "analysts" from the financial world don't understand is how an RBOC really works.  Some of us remember this is the house that Whitacre built and this is really the old SBC overlaid with bits and pieces of the RBOC's and ATT that they acquired.  


Given Tellabs long standing relationship with all the various parts of this conglomerate of RBOC's, and given Rob Pullen's personal 25 + year connections, Tellabs is not going away.


And, equally well stated is that any backhaul network being built now is almost certainly spec'd out for upgrades, both on the "client side" port density and port speed (the link from the Backhaul platform to the wireless radios at the cell sites) and on the "line side" in terms of both port density and port speed (line side being the actual backhaul piece). 


Of course this story is not so different than winning early remote terminal business, getting locked in as a vendor, then subsequently winning upgrades, new roll outs of platforms with more or less density to address orthogonal segments of the RBOC's business, and then following on, winning DSLAM upgrades with DSL rolled out.  You know this better than I do.  But obviously the Remote Terminal platforms had slots that could be upgraded on both sides of the backplane, both user facing and the backhaul links to the CO.  Upgradeable both in terms of ports, blades, density and speed per port.  


In my simplistic view (based on 20 years dealing with the carriers), Wireless Backhaul is no different.  An aggregator on the client side and nice upgradeable links on the line side.  Since the Tellabs backhaul business is current deployment, and since the carriers, ATT included will be building out their LTE networks using the same cell towers already deployed and provisioned, it is easy to imagine ATT simply upgrading the Tellabs platforms as needed for the next several years.  


Sailboat

Pete Baldwin 12/5/2012 | 4:33:13 PM
re: Tellabs Feels the AT&T Squeeze

A report today from Simon Leopold of Morgan Keegan says Cisco "is taking share with equipment deployed at the cell site."  So, it appears Tellabs's 8600 is losing some ground as far as new backhaul deployments.


But at the same time, Leopold points out that more of Tellabs's business with AT&T comes from the 8800 in the switching center, and that Tellabs has over 140 backhaul customers "that appear in growth mode."


His conclusion is that the market has been overreacting.

Pete Baldwin 12/5/2012 | 4:33:13 PM
re: Tellabs Feels the AT&T Squeeze

Good points, 7 and sailboat.  And I should remember to keep upgrades in mind when talking about carrier business (Nokia Siemens and 40G comes to mind).


But remember we're talking about stock investors.  News that Tellabs won't do all backhaul ad infinitum counts as a negative that ends up getting subtracted from the stock price.


Or, if you want to be cynical, there's now a cosmetic reason for other people to sell, which gives an investor reason to sell now, to beat the crowd.


There does seem to be evidence of Tellabs losing ground -- i.e., AT&T using someone else's stuff. See next post. But there's also an argument that Tellabs doesn't have so much at risk that its value should go down.

paolo.franzoi 12/5/2012 | 4:33:12 PM
re: Tellabs Feels the AT&T Squeeze

 


Just FYI, Cisco and Tellabs were the 2 companies chosen by AT&T for this rollout.  I think (okay I know) Tellabs was ready first.  So, I am pretty sure this is a natural thing.


I guess my point was along where sailboat was headed.  I don't think Tellabs will do 100% of AT&T backhaul, but I also don't think there is a huge change for LTE backhaul.  The general plan of carriers would be to install a network with some headroom and try to push it forward a generation or 2 with upgrades.  This does not always work nor is it always cost effective.  But these guys are not purists.  If they have a backhaul network and it can be made to carry LTE at a lower cost than doing a new network, then they will upgrade it.


Its one of the things that made FiOS and U-verse so different than other things I have seen.  Entire new end to end networks built at very high rates.


seven


 

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