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Optical/IP

Verizon Deal: Too Soon to Hope?

Verizon Communications Inc. (NYSE: VZ) has confirmed that it issued a new request for proposal (RFP) regarding long-haul gear the first week of August, but don't hold your breath for the outcome.

The RFP follows a less formal request for information (RFI) issued back in March, says Verizon spokesman Mark Marchand. It relates to "some additional buildout on our long-haul network," he says, but until the process is complete (no time frame given), the carrier won't comment further.

The RFP's under wraps, so it's tough to tell what's in it. But analysts think it could be the latest turn in Verizon's uneven progress toward creating a nationwide network based on IP (see How Will Verizon Go National?). While no value's been attributed to it, at least one source says the last time Verizon discussed long-haul plans, the price tag was estimated to be between $500 million and $1.5 billion -- though that didn't pan out.

"They were talking about expanding their long-haul network [early in 2003], then said they had substantial assets and wouldn't be spending new money on the network," remarks Farooq Hussain, general partner with Network Conceptions LLC.

While it's too soon to determine whether Verizon plans a real live project this time, folk are buzzing in a low-key way about the RFP. In a recent interview, for instance, Peter Allen, CEO of Innovance Networks, mentioned the company's hopes regarding a new RFP that seems a fit for its tunable photonic gear. Most analysts say Innovance didn't make the short list for the industry's other high-profile long-haul RFP, the Global Information Grid Bandwidth Expansion (GIG-BE) project, an optical network proposal from the U.S. Defense Information Systems Agency (see Analysts Narrow RFP Odds). Allen, it seems, is referring to Verizon.

During last week's earnings call, Ciena Corp. (Nasdaq: CIEN) CEO Gary Smith referred to a significant upcoming long-haul opportunity that would call for Ciena to dip into its long-haul inventory -- though it's just as likely that he could have meant GIG-BE, given that Ciena is said to be a finalist there.

A rundown of other players produces nobody willing to talk. But it's likely Alcatel SA (NYSE: ALA; Paris: CGEP:PA), Corvis Corp. (Nasdaq: CORV), Cisco Systems Inc. (Nasdaq: CSCO), Fujitsu Ltd. (OTC: FJTSY), Lucent Technologies Inc. (NYSE: LU), and Nortel Networks Corp. (NYSE/Toronto: NT) will respond to Verizon's request.

What those responses will contain depends on the kind of architecture Verizon's seeking. In analyst presentations, the carrier has described an optical transport network based on next-generation Sonet and DWDM gear, with multiservice provisioning platforms (MSPPs) at various points of presence to support local services.

"Verizon needs two things: support for SAN traffic, because of the big cities on the East Coast, and support for Ethernet to fend off competitors like IXCs and Time Warner Telecom," says Scott Clavenna, president of PointEast Research LLC and director of research at Light Reading.

Verizon has already picked MSPPs from Fujitsu, and it's got gear from Lucent and Nortel as well, analysts say. Also, routers from Cisco and Juniper Networks Inc. (Nasdaq: JNPR) are on its long-haul links (see Marketing Mantra: Prove Your Worth and Juniper Boosts Spirits).

Besides speculating about who will respond to the RFP and what design will be picked, sources say another big question is whether Verizon will actually shell out for a long-haul overhaul, even if it does make a selection. The carrier has been known to drift on RFPs and RFIs, and it has other priorities right now, including labor problems (see Verizon Strike Averted (for Now)). In this environment, hope for a timely outcome seems misguided.

— Mary Jander, Senior Editor, Light Reading

dljvjbsl 12/4/2012 | 11:31:00 PM
re: Verizon Deal: Too Soon to Hope? $500 million to $1.5 billion in evenue would support a major player like Nortel or Cisco for a couple of months. It is about the yearly revenue of a moderately-sized telecom company. If this RFP does come to fruition, perhaps it will finally end the illusion of massive optical markets. Hopefully, it will lead to the much needed rationalization in the data and telecom industries.
fiber_r_us 12/4/2012 | 11:31:00 PM
re: Verizon Deal: Too Soon to Hope? $500M to $1.5B is an irrational estimate. $500M would easily support *several national* LH overbuilds worth of hardware. The number must include the construction costs for the conduit systems. If so, this would also be insane as VZ could easily pick-up fiber from other carriers at a fraction of this costs.
Machavelli 12/4/2012 | 11:30:54 PM
re: Verizon Deal: Too Soon to Hope? Verizon's approach to the awarding of the RFP will be done very strategically to get the best possible prices, while assuming minimal risk in new equipment. Verizon even has potential suppliers paying Verizon $200/hr to test their equipment in the Verizon labs.

It is in Verizon's interest to stick with proven suppliers like Lucent, Fujistu, Nortel, Cisco and Ciena.

You can rule companies with no track record like Innovance. Verizon extensive network will not be a beta test site for Innovance and other "doomed to failure" start-ups.

To get the best price possible Verizon will play Lucent, Nortel and Fujistu against each other. If one player fails to meet their commitment and offers nothing less than bargain prices with razor thin profit margins for the supplier, Verizon will drop them like a hot potatoe.

"Mach"
jimmy 12/4/2012 | 11:30:44 PM
re: Verizon Deal: Too Soon to Hope? I agree that Verizon would award to a start-up. However, the Innovance name-drop is interesting. Could it be Verizon saying to the major vendors 'if you buy Innovance, we'll buy'.

btw, I believe Verizon negotiated one pair of fiber across L3 backbone as part of the genuity sale.
jimmy 12/4/2012 | 11:30:43 PM
re: Verizon Deal: Too Soon to Hope? Sorry, I missed a critical word in my last posting

I agree that Verizon would NOT award to a start-up. However, the Innovance name-drop is interesting. Could it be Verizon saying to the major vendors 'if you buy Innovance, we'll buy'.

btw, I believe Verizon negotiated one pair of fiber across L3 backbone as part of the genuity sale.
fiber_r_us 12/4/2012 | 11:30:43 PM
re: Verizon Deal: Too Soon to Hope? Assuming for the moment that VZ has fiber from LVLT and thus would not have to pay to build a long-haul OSP, then the optronics for lighting the entire 20,000Km network nationwide would cost <<$100M. I have no idea how anyone could come-up with the $500M to $1.5B hype...

Verizon will *use* startups to drive the price down to nearly no margins for all competitors. The startups will then be discarded.

Verizon will also "talk about" (but not commit to) very large deployments with very large potential revenue numbers. But, the actual deployments will be *much smaller* and spread-out over many years.

Any potential vendor would also have to pay VZ for VZ resources to "test" the vendor's product. And, of course, the product will require OSMINE certification (though LU and CIEN should already have this).

When its all said-and-done, "winning" such a project is merely a status symbol and does not help the financials of any company that "wins".

As long as carriers continue to squeeze the vendors this hard, vendors that are focused on just carriers will continue to go out of business. Business only makes sense when all of the players can make money.
dodo 12/4/2012 | 11:30:41 PM
re: Verizon Deal: Too Soon to Hope? Now that it is budget time, RFPs are back in the news and by January it will be a flop once again, whether it is Verizon , MCI et al.

JMHO
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