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Broadband Access
Tellabs halts GPON supplier initiative with Verizon
Company’s exit could spell opportunity for other GPON brokers
by Doug Allen
Tellabs has discontinued its GPON supplier relationship with Verizon, in
the middle of deploying its high-profile FTTP initiative, FiOS.
Claiming to be acting “in the best interests of both companies and their respective
shareholders,” the vendor says it will continue to follow its current
access strategy, including BPON and GPON, but restrict Verizon sales to
non-GPON products and services. That puts the future of the
8865 “service-aware” OLT platform, custom-built for Verizon, in
question, though Tellabs claims no final decisions have been made.
More broadly, this decision pulls Tellabs—a major fiber access vendor for
Tier 1 carriers, thanks in part to its acquisition of AFC—out of the
running for the largest single FTTP account in North America, giving
competitors a chance to fill the gap and making it more difficult for
Tellabs to compete for other Tier 1 FTTP accounts.
“We believe this announcement likely means Tellabs exits the PON market overall over the
longer term given no anchor customer and likely curtailment of a GPON
OLT,” wrote Nikos Theodosopoulos, a senior analyst in Communications
Equipment at UBS. “Tellabs had been losing money since the inception of
its PON rollout at Verizon, with BPON initially, and we did not expect this
business to be profitable over the two to three years. We estimate POIN sales
were about 14 percent of overall company sales in 2007, and were expected to
approach 21 percent of total company sales by 2010.”
Tellabs still has an installed base of around 90 percent of the Verizon’s first-
phase FiOS rollout, as well as a significant portion of the former
BellSouth (now AT&T) territory and to a lesser extent, Qwest’s FTTx
business. These are all BPON-based accounts, however, that Tellabs
hoped would lead to GPON contracts when the carriers moved to
upgrade their networks.
Tellabs’ decision didn’t come as a complete surprise. According to
Verizon and most analysts, it appears to have come down to creeping
economic concerns, not technology development issues, though Eric
Keith, a senior analyst at Current Analysis points out that “ industry
insiders have known for a number of quarters that Tellabs has been well
behind its GPON product development benchmarks with Verizon.
“Tellabs’ exit from the Verizon GPON landscape highlights one of the
major problems that plague almost all telco broadband access systems
vendors: increasing margin compression due to cutthroat competitive
pressures, exacerbated by operator demands for products at the lowest
price available,” continued Keith, in a recent report. “When AFC (prior to
the Tellabs acquisition) first won primary supplier status with Verizon
back in 2004, the assumption was that it would eventually make decent,
sustainable margins after the initial negative-to-negligible margin period
during the first few years of the contract, but the expected margin bump
has seemingly evaporated.”
Dropping Verizon so soon after BellSouth merged with SBC (to create the
new AT&T) means Tellabs has lost its top two broadband access
accounts in a short span. Still, jettisoning the low-margin Verizon GPON
contract should give Tellabs the space it needs to focus on other
customers and market sectors that promise sustainable margins over the
near to long term. In the meantime, Tellabs still has around 700
independent telco customers to see it through—many of whom have
been with the company for 10 years or more, courtesy of its AFC legacy
base—in addition to its other FTTP/GPON customers who use the
vendor’s 1150 and 1134 series to support triple play services over copper
and GPON networks.
But first, expect the competition over Tellabs primary supplier for the
Verizon contract slot to heat up. Incumbent vendors such as Alcatel-
Lucent and Motorola are best positioned to win further business, since
the formers’ ISAM 7342 platform is in field trials more than a year ahead
of other vendors, and is now deployed live in selected markets, and the
latter is already the secondary supplier to Verizon for its initial BPON-
based FIOS deployment. Other candidates include Ericsson, Hitachi, Calix
and ADTRAN, who just released its component set for the Total Access
5000 MSAP, one of the more robust and popular carrier platforms
available.
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