AT&T Inc. (NYSE: T) appears to have picked Ciena Corp. (NYSE: CIEN) as a domain supplier for optical networking, handing Ciena an early payoff to its pending Nortel Networks Ltd. acquisition.

In a note issued Friday afternoon, analyst Simon Leopold of Morgan Keegan & Company Inc. writes that Ciena appears to be AT&T's pick, beating out Alcatel-Lucent (NYSE: ALU), Cisco Systems Inc. (Nasdaq: CSCO), and Nokia Networks .

Ciena would join Fujitsu Network Communications Inc. , which is believed to hold the other optical domain slot.

AT&T launched the domain supplier idea in September, saying it would pick two vendors to supply each of several key segments. AlcaLu and Ericsson AB (Nasdaq: ERIC) were recently picked as the Long Term Evolution (LTE) suppliers, for example. (See AT&T Unveils Domain Supplier Strategy and AT&T Picks AlcaLu, Ericsson for LTE.)

Ciena's agreement to buy Nortel's Metro Ethernet Networks assets was seen as a way to, among other things, secure one of those domain spots with AT&T. Leopold notes that AT&T has been using Nortel's WDM equipment. (See The Case for Ciena/Nortel.)

A domain supplier spot comes as a mixed blessing, though; in fact, in a January note, Leopold wondered if it might be a "white elephant" for Ciena. The company would be expected to support Nortel's older, installed equipment, and it might not be able to cut some product lines, due to AT&T's interest in them.

On the other hand, being a domain supplier offers a shot at winning more AT&T business, especially as the 100-Gbit/s generation arrives. AT&T has been Ciena's biggest customer, accounting for 20 percent of sales in 2009, Leopold writes.

Leopold also notes that Ciena could probably keep selling CoreDirectors into AT&T even if it wasn't picked as a domain supplier. Ciena would just have to make those sales through another company.

— Craig Matsumoto, West Coast Editor, Light Reading