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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

grega 12/5/2012 | 3:00:43 AM
re: Tellabs Running ROADMs at Verizon man,

thanks for comment. I guess I main question is how does JDSU'S talent stack up to all of this. Will they still be the dominant large supplier or will they be displaced ??
o-man 12/5/2012 | 3:00:44 AM
re: Tellabs Running ROADMs at Verizon Grega,

When do you stop considering a company moving manufacturing abroad = China, Tiawan, etc. a NA company?

I will precict that the optics industry will be dominated by Japan for high quality and low cost from other Asian places, but the technicial advances will remain out of NA or better stated the USA...
grega 12/5/2012 | 3:00:56 AM
re: Tellabs Running ROADMs at Verizon As the optics industry continues to heal and grow and with only a couple of north american componets guys left, my question is has jdsu retained enough talent to have a technological edge over competitiors or it is simply that they have broad portfolio and deep pockets?? Also, do you guys think a "one stop shop" can really be successful(profitable) in this business??
thanks, I really enjoy reading everyone's comments on this board and I learn something new everyday. I am not in this industry but I use lightreading as a valuable resource.
Mako 12/5/2012 | 3:01:03 AM
re: Tellabs Running ROADMs at Verizon JDSU showed Tellabs as customer for their iPLC solution I believe.
Scott Clavenna 12/5/2012 | 3:01:04 AM
re: Tellabs Running ROADMs at Verizon "I was under the impression that Tellabs' existing roadm (i.e. the one tested by Verizon) is based on jdsu, and that they were considering metconnex technology for the 2nd generation"

That's a good question. If memory serves, I was almost certain that JDSU showed tellabs as a customer for their WSS at Supercomm this year, along with 6 or 7 other systems vendors. There was a little WSS display at their booth, but no printed materials.

Anyone else see this?

Scott
Charles_C 12/5/2012 | 3:01:06 AM
re: Tellabs Running ROADMs at Verizon I was under the impression that Tellabs' existing roadm (i.e. the one tested by Verizon) is based on jdsu, and that they were considering metconnex technology for the 2nd generation
Mako 12/5/2012 | 3:01:08 AM
re: Tellabs Running ROADMs at Verizon If this story is true and Fujitsu does not get a significant piece of RFP I predict that JDSU will exit the WSS business because Verizon was most of the market for this product.

Moreover, JDSU is having big trouble with their WSS line. Their 1x5 product that works nicely is not hitless (a Verizon requirement), while their hitless 1x9 is a dog's breakfast.
grega 12/5/2012 | 3:01:10 AM
re: Tellabs Running ROADMs at Verizon i would think it is a big deal if metaconnex has had their roadm designed into tellabs gear, my question is how big of a loss is it for jdsu, to not get the verizon roadm work, afterall this is the higher margin work they are going after ??
o-man 12/5/2012 | 3:01:10 AM
re: Tellabs Running ROADMs at Verizon JDSU vr. metconex

who cares. not real products yet. we will see.

to be a real product it needs to have positive margin, qualified, and able to ship large quantities... or maybe I am silly to think this way :)
Balet 12/5/2012 | 3:01:10 AM
re: Tellabs Running ROADMs at Verizon There is still Fujitsu for JDSU in the game. I am not even talking about Cisco, the sleeping giant.
grega 12/5/2012 | 3:01:11 AM
re: Tellabs Running ROADMs at Verizon heys, i enjoy reading your post and learning about this industry. Does anyone know what the status of the jdsu vs. metaconnex lawsuit is and if so can metaconnex sell their ROADM prior to the case being settled ?? Thank you in advance.
Roshani 12/5/2012 | 3:01:11 AM
re: Tellabs Running ROADMs at Verizon Thanks Balet and Scott for your thoughts.

Well groomed wavelengths definitely sound like a good alternative. Any thoughts on which architecture is better suited for Carrier Ethernet? I would think ROADMs over the Ciena approach. Like you said, we will see..
Scott Clavenna 12/5/2012 | 3:01:13 AM
re: Tellabs Running ROADMs at Verizon Ciena was not really in the running, though their recent announcement of a new metro optical platform (CN 4200) is positioned to some extent as an alternative to ROADM-based networking. Their argument is that with programmable interfaces and a significant amount of packet and bandwidth grooming on the ring (plus G.709 trunking), the need for many wavelengths is reduced. They also argue the architectural benefits of wavelength-based networking in the metro come at a cost-premium that this system, with just a fixed OADM, is not burdened with.

Hard to say how this is resonating with customers just yet. Still early in the game for this product, and the old ONI systems line of metro DWDM gear was just too long in the tooth to compete for this ROADM RFP. Ciena missed this opportunity, no question, but is definitely hanging in there and going after other metro optical business with a different strategy.


We'll see.

Scott
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.
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.
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
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