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Optical/IP

Tellabs Running ROADMs at Verizon

Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA) appears to have pulled a surprise upset in the optical networking world today as word is getting out that it has won Verizon Communications Inc.'s (NYSE: VZ) "WDM-OTP" request for proposal.

That equipment bakeoff, as previously reported, called for a product that could integrate "wavelength and Sonet transport and switching capabilities into a single element." Several months ago, a Heavy Reading report pointed to Fujitsu as a favorite for the Verizon business, with Cisco Systems Inc. (Nasdaq: CSCO), Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA), and Mahi Networks Inc. also still in the running. (See Verizon's Optical RFP: The $1B Question.)

Light Reading checked with two plugged-in industry sources who said that Tellabs has indeed wrapped up a big portion of the deal.

Simon Leopold, an analyst at Morgan Keegan & Company Inc., circulated a note to clients this morning saying that Tellabs "will serve as sole initial supplier for Verizon’s next generation core optical transport equipment based on reconfigurable optical add-drop multiplexing (ROADM) technology with a project worth $250 - $350 mm over 3 years."

A Tellabs win would come as a big blow to both Fujitsu and Lucent Technologies Inc. (NYSE: LU). Lucent, which has a long history with Verizon, was partnering with Movaz Networks Inc. to compete for the business.

One source says that, in the end, Fujitsu still may be in the running as a second supplier, but the RFP basically came down to a two-vendor battle. "The battle is between Fujitsu and Tellabs," says one equipment supplier source. "Cisco was number 3, but has been out of it for awhile. Lucent fell out in the first round of trimming."

"This ROADM RFP was Lucent’s to lose in many respects, and lose it they did," says Scott Clavenna, Heavy Reading chief analyst. "Clearly, this sends a message that the Movaz relationship was not fruitful enough to deliver a competitive ROADM product for the VZ RFP; and Tellabs, by winning, gets their revenge on Lucent and is back in the driver’s seat at VZ."

The loss for Lucent, and the possibility that Verizon will pick another supplier a bit later on, may be what is driving the company to retool its optical networking product lines (see Lucent Preps Optical God Box).

But Lucent isn't the only vendor surprised here. "This is a major blow to Fujitsu, too," says another equipment supplier source. Fujitsu was thought by many to be ahead of Tellabs in the Verizon RFP competition, and the vendor has been loudly touting its ROADM capabilities for several months now (see Fujitsu Firms Its ROADM Resolve).

Tellabs won the Verizon RFP with its Tellabs 7100 Metro WDM/ROADM system, a WDM system that has been around for more than three years, but was just updated with ROADM capabilities last year (see Tellabs Enhances Optical Transport).

In that, and many other ways, Tellabs fits the bill. "These next generation platforms must improve optical transparency and reach while integrating wavelength and Sonet transport and switching capabilities into a single element with a General Availability date of 8/01/05," Verizon said in a note to prospective suppliers in March.

One industry source speculates that Tellabs may have been able to keep its ROADM developments quiet because it sourced its WSS capabilities from Metconnex, rather than JDSU, which several other vendors use (see Metconnex Intros WSS).

In April, Heavy Reading noted that the "major customer for the 7100 is , though a few other Tier 1s have followed suit."

Leopold's note this morning states that (NYSE: BLS) provides most of the 7100 revenue now, with about $53 million coming in 2005.

"Contacts suggest that pricing was paramount in winning this business and it may pressure margin," Leopold writes. Leopold expects Tellabs to see its first revenues from the Verizon business in mid 2006, with abut $50 million in WDM-related revenues coming from Verizon next year.

Tellabs and Lucent declined to comment for this story.

A Verizon spokesman said, "There isn't any contractual decision to comment on yet."

Shares of Tellabs were up $0.07 (0.73%) to $9.64 today, while shares of Lucent slipped $0.05 (1.62%) to $3.03.

— Phil Harvey, News Editor, Light Reading

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Scott Clavenna 12/5/2012 | 3:01:16 AM
re: Tellabs Running ROADMs at Verizon Back in 2001, Tellabs appeared to be winning Verizon metro DWDM with its 6100 product. Problem was, the product didn't deliver, so Lucent came in and took the business away with their EON product.

http://www.lightreading.com/do...

If this note from Morgan Keegan is true, it's interesting to see this story come full circle.

And the comment about Metconnex is interesting; great news for Metconnex and a real shot across the bow to JDSU, which has locked up a number of wins with its ROADM/WSS (Fujitsu being the most important).

The very crowded ROADM/WSS module market may begin to shrink considerably as major ROADM wins are announced.

Scott
Balet 12/5/2012 | 3:01:15 AM
re: Tellabs Running ROADMs at Verizon O-man,

You are probably right. I wish I could write somehting similar and sell it for $27M or so.

I personally think the news are a bit too early, both on Tellabs win and Metconnex design-in.
o-man 12/5/2012 | 3:01:15 AM
re: Tellabs Running ROADMs at Verizon Balet,

You are right about the reading thing... But Lightreading is meant to be a funny satire on life, right?
Balet 12/5/2012 | 3:01:15 AM
re: Tellabs Running ROADMs at Verizon With all my respect to Lightreading do not believe everything you read.
It reminds me an old Corvis story...
slayer666 12/5/2012 | 3:01:15 AM
re: Tellabs Running ROADMs at Verizon JDSU is currently suing Metconnex over that exact ROADM technology...They want all the IP and $11M in damages. The technical founders of Metconnex left JDSU, where they were senior managers of R&D, working on, get this, ROADM technology!
Where will that leave Tellabs when their ROADM is gone? I guess a new JDSU customer?
redface 12/5/2012 | 3:01:15 AM
re: Tellabs Running ROADMs at Verizon Does anyone know how MetConnex makes their device? It seems that they take a PLC AWG chip and glue a MEMS chip to the waveguide ends so that AWG performs the WDM function and the MEMS chip performs the switching function. Can anyone provide more detail as to how well it works? Thanks.
Roshani 12/5/2012 | 3:01:14 AM
re: Tellabs Running ROADMs at Verizon Was Ciena ever in the running? Not sure if they have a ROADM. They definitely had the brains for it. Just curious..
Balet 12/5/2012 | 3:01:14 AM
re: Tellabs Running ROADMs at Verizon Are you talking about recentely acquired Internet Photonics? As far as I know they were not in the game.
It looks like Ciena has changed its focus lately overall.
Scott Clavenna 12/5/2012 | 3:01:14 AM
re: Tellabs Running ROADMs at Verizon you wrote... "With all my respect to Lightreading do not believe everything you read.
It reminds me an old Corvis story..."


Boy, there is a lot of distance between Tellabs winning a Verizon RFP and just about anything printed on Corvis in the od days.

What exactly are you referring to?

I could definitely see there being more to this story, as 11th-hour negotiations with RBOCs is always interesting. Lately I keep hearing that a major win goes to a supplier because they tell the RBOC that without this win, they are cooked, so if they want continued support of existing gear in the network they'd better step up for this procurement, or else...

Sounds like loser's sour grapes, but I would believe just about anything after the last four years.

Know anything more on this one??

Scott
Balet 12/5/2012 | 3:01:14 AM
re: Tellabs Running ROADMs at Verizon Thanks for your comments, Scott.

I just think it might be too early to say something defintely about this contract. I wish Tellabs best luck, but let me ask my Verizon friends tomorrow.
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