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Optical/IP

UBS: Alcatel Could Win PON RFP

Alcatel SA (NYSE: ALA; Paris: CGEP:PA) could win big with the RBOCs' "Fiber to the Premises" RFP, according to analysts with UBS Investment Research.

In a conference call with clients today, Nikos Theodosopoulos and colleagues said Alcatel has the potential to win a sizeable portion of the contract proposal issued last month by BellSouth Corp. (NYSE: BLS), SBC Communications Inc. (NYSE: SBC), and Verizon Communications Inc. (NYSE: VZ) (see RBOCs Hungry for Fiber).

Alcatel is alone among big companies responding to the RFP, say the UBS analysts, in being both an integrator and supplier of a shipping broadband passive optical network (BPON). Alcatel also has the largest access installed base in the U.S. among the likely candidates, which should help its chances considerably.

(UBS makes a market in Alcatel securities, along with those of other companies mentioned in the report today.)

Alcatel can't win alone, Theodosopoulos said. To meet the needs of the RFP, vendors need a cheap home PON unit, a working BPON, video expertise, and network management/integration services. Alcatel has most of that, but it needs help in the video area and in some of the PON components. Its partnership with Scientific-Atlanta Inc. (NYSE: SFA), already established, will be key.

Other partnerships handicapped favorably by UBS are:

The analysts rank prospective bidders as follows:

Table 1: UBS Picks Likely BPON Equipment Winners
   
Group 1 Alcatel/Scientific-Atlanta
Group 2 Lucent/Motorola/Quantum Bridge
Siemens/Terawave (or other startup)
Group 3 Nortel/Optical Solutions
Combos of Advanced Fibre, Cisco, Fujitsu,
Marconi, NEC, multiple startups
Source: UBS Investment Research "Q-Series" presentation 7/9/03


At least one of these partnerships could win up to half the RFP, UBS says. Since the U.S. is the only country with a large-scale PON RFP out, and since most of the leading PON suppliers are startups (Optical Solutions Inc., Quantum Bridge Communications Inc., and Terawave Communications), the carriers aren't taking any risks. For every item of work awarded, there's likely to be a second vendor involved.

Still, the opportunity for Alcatel could be enormous, running into nearly $2 billion annually if the deal pans out as UBS predicts. Specifically, if the RBOCs install PONs for an average of 3 million homes per year once the project gets going, Alcatel could take up to $575 per home, by UBS calculations.

Nice work if you can get it. But UBS offers a few caveats. First, the contract isn't likely to mean real deployments for at least another year: "We believe the recent FTTP RFP sent out by the RBOCs will result in network deployments no sooner than 2005, with only trials in 2004. We do not expect a new capex cycle by the carriers until 2005 at the earliest," say materials accompanying today's presentation.

Also, while Alcatel looks to be a possible winner of big bucks in this RFP, UBS says it may come at the cost of some of its DSL deployments, so the increase in revenues may not be as sizeable as some may wish.

Not everyone has been as aggressive in their outlook on this RFP as the UBS analysts. In a note issued in May, analyst Steven Levy of Lehman Brothers estimated RBOCs would deploy between 500,000 and 1 million lines annually, not 2 to 5 million as UBS predicts.

Others have questioned how serious the RBOCs really are about PON rollouts (see A Closer Look at PON Econ). UBS says there are definitely differences in their PON plans. Verizon, they say, will likely spend the most, BellSouth the least. But UBS argues that all the RBOCs are likely to glom onto PON for competitive reasons. Fiber deployments will help them beef up bundled rollouts while escaping the regulatory strictures of their copper networks.

UBS, like Lehman, warns the PON RFP isn't a sign of rebirth in the telecom sector: "Given our view that FTTP will not be a major capital spending cycle until 2005 at the earliest, we maintain our neutral position on the telecom equipment industry. We do believe, however, that the... outcome of the FTTP RFP in the next six months will be a major factor for investment sentiment toward the sector."

— Mary Jander, Senior Editor, Light Reading

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rjmcmahon 12/4/2012 | 11:46:57 PM
re: UBS: Alcatel Could Win PON RFP Interesting article, but one must wonder if choosing Alcatel may not be political suicide for the RBOCs. With W in the Whitehouse and France's opposition to the war in Iraq, I'm hard pressed to believe that there will be much regulatory relief from either end of Pennsylvania Avenue if regulators see billions of dollars flowing overseas, especially to France.

Clinton used our space program as a vehicle to get money to an economically troubled Russia. France's economy is teetering from what I've read, particularly now that they don't have any claims on those Iraqi oil fields. This may be a dove branch to them, which reveals what Dubya really thinks about our industry :-(

It also gives the RBOCs just another excuse for never delivering on their promises. You know, "Those frenchmen sold us a bunch of junk."

We'll need some regime change before our industry can fulfill its potential. It starts at the FCC.
lightsucker 12/4/2012 | 11:46:57 PM
re: UBS: Alcatel Could Win PON RFP Interesting article, but one must wonder if choosing Alcatel may not be political suicide for the RBOCs. With W in the Whitehouse and France's opposition to the war in Iraq, I'm hard pressed to believe that there will be much regulatory relief from either end of Pennsylvania Avenue if regulators see billions of dollars flowing overseas, especially to France.

I guess the real question is, "was that five shots or six?"

rbkoontz 12/4/2012 | 11:46:56 PM
re: UBS: Alcatel Could Win PON RFP I have to disagree with Nikos.

Alcatel will definitely win a big chunk of this business - duh. They are the only viable major player who has their own product - plus the fact that they own the DSL market and have the only active RBOC PON trial with Mission Bay at SBC. Done deal. But this bid will definitely go to 2 or 3 vendors to create some competition so who else?

Lucent?, Siemens?, Nortel? None of these guys have their own products and RBOCs don't buy OEM products or from startups. Now maybe if one of them made a quick acquisition of a startup product we'd be talking - but all of them are in total organizational disarray. The most likely, Lucent, is the most F'd up.

Three startups have mature products, but only one was built for residential - Optical Solutions. Look for them to be aquired or be set up with a call option. Give them #2 odds.

Cisco could have played here had they embraced Ethernet over tried and true ATM. Bummer guys - you're gone.

Fujitsu? Maybe. They certainly have the channel presence in SONET. Advanced Fibre? Darkhorse, alsoran, can't get over the hump. Where's the product?

Somebody is going to get a surprise win here.
wlan-101 12/4/2012 | 11:46:56 PM
re: UBS: Alcatel Could Win PON RFP <one alcatel="" be="" choosing="" for="" if="" may="" must="" not="" political="" rbocs.="" suicide="" the="" wonder="">

This may not be a problem for RBOCs. After all, business is business. Especially, Verizon recently extended a DSL deal with Alcatel to install DSL in additional 1,000 switching centers. (See &#8220;Verizon Extends Alcatel DSL Deal&#8221;, 6/2, Light Reading) I haven&#8217;t heard Verizon being harassed by Uncle Sam because of that yet.</one>
chip0145 12/4/2012 | 11:46:55 PM
re: UBS: Alcatel Could Win PON RFP If Alcaltel is allowed to get away with their upgrade path from DSL to BPON, it will constitute the biggest fraud in the history of telecommunications.The technology will never allow the Capex and Opex expectations of Telcos to be met. Further it will cause the VCs in this world to waste many more millions on a 5 year old technology.Point to Point Ethernet is the solution because of the avialable silicon, software and security.
FinBurger 12/4/2012 | 11:46:55 PM
re: UBS: Alcatel Could Win PON RFP "UBS makes a market in Alcatel securities, along with those of other companies mentioned in the report today."

That was the most informative sentence in the report.

lightsucker 12/4/2012 | 11:46:55 PM
re: UBS: Alcatel Could Win PON RFP True, busines is business, but changing out the access network isn't business as usual. DSL is a nice to have for high end users, the proposed FTTP network is a wholesale replacement of the copper network- that becomes a matter of national security and even Dubya understands that you need a domestic supplier as the prime supplier.
strands555 12/4/2012 | 11:46:54 PM
re: UBS: Alcatel Could Win PON RFP Remains to be seen if alcatel wins a big chunk of anything.

Their product is not cost-competitive (not even close to RBOC targets unless alcatel once again takes huge losses to "buy" revenues.

Mission Bay is a fly speck. Little relevance. 6000 end points over a 15-20 year period, greenfield, and only a few hundred initially. Word I hear from reliable sources is that SBC is not terribly happy with the price or the performance of the Alcatel gear, even at the miniscule level of this pilot so far. Believe it or don't believe it. Doesn't matter to me.
----
Lucent is more F'd up than Nortel? I suppose it's all a matter of how you measure it.
----
What it all points to IMO is the RBOCs won't deploy much of anything for years. And we may turn out all the better for it.
lastmile 12/4/2012 | 11:46:53 PM
re: UBS: Alcatel Could Win PON RFP The controversy here is not Political/PON/Alcatel/FCC/UBS/Analysts/etc-etc.
If the RBOC's take it easy any longer the Cable guys/Voip/Wireless will eat them up. Unless the RBOC's replace Copper with something that can offer triple play they will be doomed.
POTS is dead. The sooner they realize this, better are their chances of survival.
The FTTP/FTTH RPF that they have asked for is serious because the time has come for them to act and not play games anymore as they have been doing for the past 100 years.
optical_man 12/4/2012 | 11:46:51 PM
re: UBS: Alcatel Could Win PON RFP Gulf War II video shows FTTP won't pay for years.

That's my premise, here's my argument (although, let it be stated, I'd love to have FTTP and content to fill it, and subs to purch the content, so I could make some $ building the system)....

There's been a buildup of Broadband in the U.S. Subs at home love it, and find various uses for it, but no real broadcast content.
Gulf War II starts. Everyone flocks to MSNBC, ABC, CBS, CNN, FOX for "video feeds". Did anyone notice that the video feeds after 10 days of the war went from postcard to postage stamp size, no matter what your connect speed was? Most of my friends did. That's b/c the servers/pipes/etc of the broadcasters were under equipped to handle the glut. (visual of John Chambers drooling).
All the vendors went to the broadcasters and told them " for $X million, I can serve all your customers, and you can sell ads...". Broadcasters said "we're liberal, but not stupid, this ain't 1997, we're not buying that "we must build it" crap!.
So, CNN, etc offered $9.95/month bigger video window feeds, allowing you to maximize your broadband capabilities.
One problem: Joe American 'may' buy 1 of these subscriptions and that's it.
We have a problem with FTTP. If the RBOC's build it, what do we do with it? (as consumers). The RBOC's aren't in the content business.
The business case folks at the RBOC's have seen this, and are trying to figure out what to do.
That's my premise on why FTTP is a quarter horse in a tarpit.
Shoot me down, I'd love to be wrong, and would like to see some RFP's to build out the pipes to deliver the content to Joe America!
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