Verizon Says, 'Hello, Moto'
Strategically, this is a big deal for Motorola. Even though some analysts say the intial revenues may be small and the contract will take some time to build up, it means Motorola's got its hands in the video expansion of the world's second-largest telecom provider.
Motorola's newly-formed Telecom Access Solutions business will be the services arm that takes care of Verizon. That group will also pursue other opportunities in the telco video space, according to Randy Bahr, VP of business development for Motorola's Broadband Communications group.
As part of its deal with Verizon, Motorola will provide everything from video headends to set-top boxes to some in-home networking equipment. It will likely partner with other companies on some of the video middleware and other software pieces, a Motorola spokesman says.
It's not clear whether Verizon will pick Motorola as the second supplier for its optical line terminals (OLTs), the “brains” of the FTTP system that control the downstream and upstream signal transmissions. Some analysts feel this new contract puts pressure on Advanced Fibre Communications Inc. (AFC) (Nasdaq: AFCI), Verizon's first OLT provider.
"As we have been saying all along, we are not convinced AFC's position in FTTP -- especially in light of MOT winning a spot at VZ this morning too -- is enough to provide Tellabs with a solution to its long-term topline growth problems," writes J.P. Morgan Chase & Co. analyst Ehud Gelblum in a note to clients this morning.
Verizon spokesman Mark Marchand says that the carrier has not announced its pick for a second OLT supplier (Verizon Expands FTTP Plan). But he "can't rule out that [Motorola] would bid on this."
Neither side is talking about how valuable the contract will be to Motorola. Some say the real profit on Motorola's side will come from customer premises equipment.
"We don't expect MOT to profit from the infrastructure given this is a footprint rollout, but expect it to profit on the set-tops," writes Daryl Armstrong, Smith Barney's telecom equipment analyst. Armstrong believes Motorola's set-top revenues from Verizon will amount to $23 million or so.
Verizon's first rollout of video services is expected to occur sometime next year, and the company has said it will first offer an RF-based video service, equivalent to what is now offered by cable companies. The FTTP RFP the carrier issued -- along with SBC Communications Inc. (NYSE: SBC) and BellSouth Corp. (NYSE: BLS) -- in June 2003 even spelled out a video delivery system that would use, "to the extent possible, standard off-the-shelf CATV video equipment."
The RFP went on to say that the video distribution technique planned "is a CATV-like system." It noted that carriers were interested in being able to provide a "DTH (Direct To Home) Satellite service" in areas where the CATV network wasn't feasible. "The expectation is that the video overlay aspect of the G.983.3 delivery platform will be utilized in one of the two spectral configurations but not at the same time." (See ITU Drafts PON Standards.)
It only makes sense that Verizon's CATV-like video network will be built by Motorola, a top supplier to cable companies. A Motorola spokesman says the video network it is planning for Verizon will support IP-based video as well, when needed, but the architecture and the partner companies used will be "more similar to what we've done in the cable industry."
— Phil Harvey, News Editor, Light Reading