Tellabs Running ROADMs at Verizon
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