GLG News by Samuel Greenholtz

Implications: 1.      Actelis believes that no other supplier is even close to it in devoting the amount of engineering resources to Ethernet over Copper (EoC). 2.      The supplier contends with most large-scale deployments, it is rare that a carrier will combine multiple technologies over the same infrastructure. 3.      However, there seems to be evidence that major service providers will increasingly be considering MSAPs.  

Analysis:  First of all, there is nothing stopping the RBOCs from using Adtran’s TA 5000 or a Zhone MALC that is dedicated towards an EoC deployment (although Actelis would still view it as leveling the playing field).  These big telcos are more and more looking to go with a single vendor for major purchases.  The success of Ciena’s CN-4200 with multiple blades is also a sign of an inclination by them to go for multi-service boxes in general.  In addition, Adtran is an incumbent supplier.  

Actelis concedes that smaller Tier 3 and some Tier 2 carriers will be more apt to go with a MSAP.  But it also thinks that in having 90 engineers dedicated to its EoC platform,it will make a big difference in future purchases because of its ability to introduce innovations as well as to substantially increase the reliability of its system.   

It is true that Alcatel-Lucent does have broader issues to deal with in the telecom market  and its ability to carry on in the EoC space is questionable, if the vendor is not going to focus on it. Somewhat surprisingly, Actelis questions Hatteras’ ability to survive in the market.  In addition to Aktino and Zhone, Actelis expects to see other vendors get into the space.  

One interesting area in which Actelis also believes it excels is in the challenge to do no harm.  Carriers are concerned about a new device not impacting at all on their VDSL and ADSL networks.  Actelis argues that certain competing technologies have multiple impacts on these residential businesses.    

Implications: 1.      With AT&T’s landline map taking up such huge chunks of the U.S. geography, Verizon has badly wanted to be the biggest wireless company in the country. 2.      With the clock winding down on a favorable regulatory environment, Verizon most likely cannot afford to wait any longer. 3.      Timing is certainly on Verizon's side for future considerations of upgrading to the LTE network.

Analysis:  The RBOC was always hoping to fully take over all of the assets of Verizon Wireless.  Vodafone’s stake in the company was evidently too valuable for the UK-based company to give it up.  So, the statement in the source article that “the telecom giant felt Alltel's market value had been artificially inflated by deal speculation”, is not really the major reason Verizon did not purchase Alltel last year.  There always seemed to be an understanding that the private equity firms were keeping Alltel on ice until Verizon “pull[ed] the trigger.”  We have made such assertions in previous articles.  

Verizon undoubtedly has enough time to get such an acquisition on a fast track with the current Department of Justice and with the present FCC.  The positive factor is that there is not a lot of “assets in areas where its coverage overlaps significantly with Alltel's and where both carriers are major players.”  The two networks fit very well together. 

Of course a third component of the reasoning needs to be addressed. If Verizon is serious about LTE and if they truly intend to build this network in two years, then a merger at this juncture would be considered wise.

Given the time it will take to complete the merger and the work  required  to  bring the  two  companies together now is the time to act. This will facilitate future planning and allow for the work to progress in an orderly fashion. An example of how this can work against mergers only requires a look at the fiasco that is still ongoing at AT&T with the Bell South merger.    

Implications: 1.      The previous director of Burlington Telecom, Tim Nulty, is a savvy individual. 2.      The Burlington muni fiber service seems to be working out.   3.      In general, Nulty did a rational job there.

Analysis:  Burlington already had municipal electric utility for distribution.  Thus, it had rights-of-way.  Most of the fiber plant is aerial and the cost to pass each home turned out to be only about $300.  

Nulty was smart in the way he rolled the network out.  He did not do it all at once.  The business community was done first and then he came back and took care of the residential areas.  

However, it appears that Nulty got overly ambitious.  A lot of money was spent on a switch and a video headend.  Burlington Telecom also had to apparently go through a bunch of lawsuits.  Nevertheless, it reportedly could get to be entirely cash flow positive in January of next year.  

It can probably be taken as a given that not all of towns of the ECFiber coalition (part of  the Valley Fiber umbrella group Nulty leads)will achieve the very low cost that was the case in Burlington.  Still, the source article appears to make too much out of the VTA refusing to fund its optical network.  Only a scant amount of money was under consideration.  ECFiber is counting on the private sector for the bulk of its capital.  The company has established a contract with a prominent FTTP engineering firm. It anticipates finishing its construction work between December 2009 and December 2011 (depending on the total number of towns that are included).  

In New Hampshire, the West Central New Hampshire Regional Homeland Security Communications Consortium(WCNH)is an alliance of eight towns looking to lease a fiber optic line.  As is the case at other munis, it is a not so easy for WCNH to get financing with the weakened economy.  It intends to turn over management to a non-profit service provider.  The system will probably not be established for another two years.  

In Maine, the ConnectME Authority only has a very small amount of money to give to municipal telecom projects.      

Implications: 1.      Some people in the industry believe that the only way to possibly stop the FTTH juggernaut is if AT&T bought a satellite TV company and used the service in conjunction with DSL.   2.      Of course, the problem with this approach is that there will be no operations savings. 3.      Still, it could be another means of providing video that will ultimately also include FTTC and FTTH at AT&T.

Analysis:    Qwest continues to look at doing some creative things with DirecTV to play to each of their strengths.Traditionally, the satellite TV firms have upstream through a telephone port for billing verification per pay per view and things of that nature.  Apparently, there is a movement to switching that to broadband and actually downloading some VAs and caching it on the box over DSL lines.   As pointed out in a previous article, local content and additional video on demand could be offered over the copper as well.With a satellite TV company, AT&T would avoid all of the hassles in dealing with IPTV, but still save some face with a continuation of the FTTN.  

The downside is that AT&T would still have this expensive network with lots of nodes that all need to be powered – and personnel driving all over the place to support them.  With passive optical networks, there is no place for people to go.  Even an independent telephone company with just 300 nodes needs to have a person spending lots of time just paying monthly electric bills.  One telco has to hire four college students and all they do the entire summer is go around and change out about 25 percent of the batteries because they wear out every five years.  With GPON in just the rural areas, a network with about 300 nodes could get dropped down to under 40 – a huge cost savings.  For those residences that are on satellite – offer them a few local channels and some Internet access and they are off of it.

Implications: 1.      An intriguing idea with muni fiber networks is to have a separate service layer that stands alone from the infrastructure. 2.      So, services can be added independent of who owns or who runs the network. 3.      Getting to such an ideal situation is the tricky part.

Analysis:  The concept is that a different kind of service provider would throw into the municipalities with fiber, but not have to spend money on the capital.  It would involve revenue sharing with the city.    

One medical application associated with such a network in the US allows people not to go into assisted living.  The individual can wear a tag that is kind of a ring-down circuit.  WiFi is used in the house along with a software algorithm to establish a “typical pattern” for the resident.  If that pattern is broken, or if the person claps, etc., it will set off an alarm.  Instead of a nurse driving over, there is a mini video conferencing device in the home.  

It appears that the patient pays for the service and the provider gets about $3,000 a year from Medicare.  That revenue is split between the service provider and the city.  There is not a lot of capital involved for either the city or for the provider.   

It does not take too much imagination to figure out that there could be a host of emerging services of all types that could come into play.  Figuring how to divorce the services from the infrastructure may not necessarily be practical or easy to accomplish.  The really interesting aspect is if these types of applications do take off, whether large companies like AT&T and Verizon have to follow suit. 

Implications: 1.      In being so outspoken about femtocells, Cisco Systems definitely has some major doubts about the technology.  2.      Still, some really high-core technical people in the wireless space believe the best thing to do is move to femtocells. 3.  However, T-Mobile’s discount plan for its dual chip handsets offering WiFi is quite compelling.

Analysis:  One can find customers of the T-Mobile dual chip phone who think it is the best thing since sliced bread.   However, these opinions are sometimes dismissed because a lot of them hardly know anything about technology.  There is also the belief by some in the industry that WiFi is just flaky.  There are wireless experts that point to the advantages of femtocells from the carrier standpoint.  They look like mini base stations, they can actually manage them, and they are on their own frequency.   (The technical shortcomings of femtocell technology are stated in previous analyses.)  

However, with T-Mobile’s WiFi plan, subscribers pay just $10 a month in addition to the regular bill for unlimited calls.  If the customer has a family plan with the carrier, it is $10 bucks for the whole family.  In addition, the routers are free after rebate.  How does Sprint compete with its inherently more expensive femtocell technology, which it is still in trials?  

Wireless customers have been putting up with dead zones in certain places for so long, a big improvement will go a long way. The expectations for the quality of wireless service in general were substantially lowered a long time ago.  So, even if femtocells offer superior technology, and could potentially lead to higher reliability, the cost differencecompared with WiFi is likely to continue to make them a hard sell.

Implications: 1.      On one extreme, there is the lousy 2.5 GHz that will supposedly be used for WiMAX. 2.      At that frequency, it is line of sight and it is not going to go through much. 3.      There is some speculation that at 700 MHz, the frequency propagates so well that there may be problems with frequency allocation among the cells.

Analysis:  The 700 MHz rate is certainly ideal for video transmission.  It is not unusual to be up at 900 MHz or 1300 MHz.  But in going down to 700 MHz, the transmission just keeps on going – including through concrete block walls.  The concern is that it propagates so well that there may be challenges with cellularizing.  For example, it may go two cells over and essentially create interference issues.   

It is interesting that there does not seem to be too much discussion at this time over the potential hurdle.  And it is quite conceivable that there will be no difficulties at all.  And one should be reasonably assured that AT&T and Verizon would figure out a way to deal with this problem, if it arises.  The cost benefits of working at 700 MHz are just so attractive.        

Implications: 1.      Municipal fiber builds appear to be gaining some momentum especially in the areas where Verizon is not playing. 2.      UTOPIA has such a bad rap with most people right now that they are starting to get gun-shy about open access. 3.      Being the opposite extreme of the city running the network, a totally wholesale model should probably be avoided in these muni networks.

Analysis:  There were several reasons why Utopia has had problems including “financial difficulties.”  The first one is the nonsensical kind of meter fee assigned to all homeowners that go on the network.  According to a recent article in the Deseret Morning News, “UTOPIA's new business plan requires every home to pay about $2,000 or more just to bring in the fiber, and it won't begin servicing a neighborhood until at least 40 percent of residents have signed on.”Just how many residents are going to be willing to pay that fee?  

Another problem is the mixed process on turning up services.  In addition to the service providers having to do some work, UTOPIA apparently goes out and dispatches its own people in the field.  With nobody in charge, it results in a bad experience.  

Also, UTOPIA has not had any service providers that were committed and/or with enough money to do some serious marketing.  

A municipality would be better off just hiring one provider – and give it an exclusive.  The cost to get a particular customer could be for it to pay for the ONTs and the drops.  As a consulting firm concluded in the case of Provo, UT proposal of selling its iProvo network to a service provider, “A sole overbuilder will fare better both economically and in market share than multiple providers on an open-access network.”      

Implications: 1.      In the past, ADC certainly put too much focus on the copper space. 2.      Eventually, it did catch up with its fiber optic product line, but not after opening the door to some competition. 3.      CommScope will likely take away a significant amount of ADC’s share of AT&T.

Analysis:  ADC was always a major supplier to the original BellSouth.  As a result of an agreementthat has been in place, AT&T is allowing ADC to continue to sell into that territory.   

ADC has progressively had a tough hill to climb with the ex-SBC portion of the company.  It is anticipated that at some point AT&T is going to cut off the vast majority of business to ADC and strictly use one vendor.  The RBOC has a favorable, almost exclusive, contract with CommScope.  

As always, it is much easier for a supplier of passive elements to be replaced than it is for active electronics with all of the operations and compatibility issues with the latter.  Still, AT&T as a whole will continue to buy certain products, such as distribution frames from ADC indefinitely because the craftspeople are used to dealing with the subtle differences of the incumbent’s equipment.  The service provider does not necessarily want to spend the extra dollars to get its people familiar with certain items that have been used a particular way for decades.  If a purchase of a new cabinet is required outside on the corner of a street, it appears to be a slam-dunk for CommScope.  If it is more of an– inside device, especially anything that handles wiring and so forth, AT&Tis going to be a little more reluctant to change it out.   Despite the expected loss of a lot of AT&T’s business, the current outlook for ADC is  still positive.  Further penetration into international markets as well as a greater amount of sales to the independent telcos (with all of the RBOCs looking to sell off lines) should keep the company in an upside direction in the near future.  And no other changes of this magnitude are expected with ADC’s other major customers.           

Implications: 1.      Adtran views Ethernet over copper as any of suppliers directly focused on the solution – as an important application. 2.      Despite some recent questions regarding previous delays, Adtran still retains enough of its corporate DNA to remain a powerful force in the industry. 3.      The supplier appears totally back on track with its TA 5000.  

Analysis:  One major unknown is just how popular Ethernet over copper will become.  But an even more important matter is determining whether a purposed platform can deliver materially better price/performance than a Swiss Army knife like Adtran’s TA 5000.  

Adtran continues to have the respect of both competitors and customers.  The general conclusion is that the supplier did a great job on the TA 5000.  It creatively solved some of the issues of redundancy and backplane speed increases.  And Adtran accomplished it in a way, which seemingly does not saddle it with a large first cost – which is always the penalty with Swiss Army knives.  

Adtran expects a tier-one service provider to begin installing its Ethernet-over-copper solution this summer.  The vendor is also hoping that the high level of interest shown by AT&T and several European carriers will spur even further attention.            

Implications: 1.      Both Actelis and Hatteras have become leaders in the Ethernet over copper space.   2.      Hatteras is clearly in second place at this time. 3.      Aktino’s meaningful technical advantage could result in a buyout.

Analysis:  However, one wants to measure it – in time, in sales, and in customers, Actelis and Hatteras currently lead the pack on Ethernet over copper (EoC).  Actelis is now in front of everybody with Hatteras appearing to represent a quarter to a third of the leader’s business.  

Actelis has been doing business internationally the longest of any EoC supplier.  Former Chief Marketing Officer, Mehmet Balos seemed to have done a pretty good job at the company.   

Actelis probably has some of the attributes of most Israeli companies, excelling at technology, but not necessarily strong on marketing and sales, especially when it comes to North America.  Potential partnerships to make further penetration into the US will mean lower margin generation.  However, the person most significant to its leadership is Dennis Young.  When Young was an executive at Pairgain, he developed a solid reputation for his high level of expertise.  

Hatteras also has highly adept people including CEO, Kevin Sheehan, SVP, Worldwide Sales, Chris Cook, and CTO, Matt Squire.   Unlike competitor, Aktino, which started at the DS-1 and DS-3 levels, Hatteras wisely went straight to Ethernet – the main game right now.  Hatteras has made notable inroads into some of the CLECs, including XO, and got the ex-BellSouth account.  However, with San Antonio (AT&T) now calling the shots, Adtran might displace Hatteras in those southern states.  

Concerning Aktino, it apparently does have a major advantage in terms of bandwidth.  The most likely scenario is that another player purchases it.    

Implications: 1.      Consolidation will continue in the low-margin connector business. 2.      With a good chance that ADC will not get substantially bigger, there is a strong likelihood that it will get purchased. 3.      The question is whether it will be in the short or long terms.

Analysis:  Which company would absorb ADC?  It would probably be a supplier that is also a player in the connectivity market.   

Corning could be a potential buyer, but with its major focus on fiber, it is somewhat doubtful.   Tyco, which has lots of money and is aggressively going after new businesses, would benefit because it would complement its strong position in Europe --  and move it to a top spot in the U.S. space.  However, would there be enough margin/growth potential for Tyco to actually pull the trigger?   Emerson is in the business only as an extension of its power product line in providing cabinets – probably no attraction there.  It is certainly not out of the question that Japanese suppliers Fujikura’s AFL or Furukawa’s OFS might have an interest as their U.S. optical businesses are nothing to right home about.  Unfortunately for Danish Draka, it is probably way too small to even consider the idea. 

  In a couple of years, CommScope could very easily look to buy ADC (if it is still available) to get an even greater presence on the telephone side.  Although it could arguably afford to buy ADC now, it has its hands full with integrating Andrew.    

Implications: 1.      ADC probably has figured that without a large acquisition, it does not pay to get into the physical wireless connectivity business because it is such a mature market. 2.      If the supplier had acquired Andrew, it would have extended dramatically into this other kind of protected space. 3.      The more leading-edge types of solutions that ADC is getting into now would have been an extension of the Andrew business – had it gone through.

Analysis:  The failure to buy Andrew psychologically crushed ADC’s leadership.  They spent a lot of time doing that deal and thought they had it.  It was a key to doubling the company’s size – and taking it into wireless in a bigger way.It seems doubtful that ADC would now purchase Powerwave because it just would not achieve the same kind of economies in terms of equipment volume and scope.  

Instead, ADC has a group that is pretty fixated on new opportunities in wireless.  The supplier has already purchased LGC Wireless, which gets it in the picocell and eventually into the femtocell games.  ADC has also been looking to make very early stage investments in other mobile technology, apparently including point-to-point gear.  

Some longtime observers of the company worry whenever ADC ventures outside of  connectivity because in the past, it has not come up with the resolve or the know how – it just dabbled.  Former CEO, Bill Cadogan, broke that cycle significantly, but he tried to do too many things.  He also got into businesses that were just so far field -- and the philosophy was that ADC should have everything under their wing.  (A good example was the purchase of Saville Systems, a customer-billing vendor.) And when times turned bad, they almost all turned bad.   

It was not just the industry analysts during the 1990s that did not get what was going on at ADC – ADC did not get itself either. In the last two years of annual strategic planning, all of the leaders concluded that it was a disjointed hodgepodge with very little critical mass in anything except for connectivity.  However, Cadogan would have none of it and he called the shots.  If a division was resistant to a new idea, he just created a new one. But even back then, it was the non-sexy distribution frames and connectors that really made the money.  (In fairness, Cadogan still did a good job.) 

In stark contrast, Robert Switzis more of a consensus guy – who arguably does not know the telecom space as well as Cadogan.  The company in general today is much more risk- adverse.  ADC has gone through so many layoffs, the risk takers were kind of weeded out.  The people that tended to not want to move out of Minnesota or did not see themselves as able to leave are still with the supplier.  

ADC is clearly profitable, but there does not seem to be any prospects for a substantial increase in growth.  And its latest ventures into wireless will probably not make too much of a difference.     

Implications: 1.      No supplier should even think about imposing a fixed schedule on when the RBOCs should give up TDM switches. 2.      It is not as if any of these large vendors has a monopoly on this equipment. 3.      Service providers have more power than ever to dictate terms to their suppliers.

Analysis:  It is one thing to become proactive in “curtailing hardware and software development.”  But it would be nothing short of suicidal for a vendor to impose an arbitrary deadline to discontinue manufacturing and support of RBOC central office switches.  In fact, given the critical role that these devices play in the network, they tend to be the last network element that these telcos want to change anyway.  Changing out an entire switch usually means there is a major problem that needs to be resolved.  So, planners and engineers would hardly appreciate the supplier causing the crisis.  

Both Alcatel-Lucent and Nortel are also in a weakened state.  They cannot afford to play hardball with customers that continue to provide so much revenue to them.  

Historically, in the public telecom market, it always takes a very long time for a new vision to be realized.  The tremendous operational savings with IP will inevitably make the usual timeframe much shorter. – but it will hardly occur overnight.  As companies like AT&T place more emphasis on large enterprise customers, the need to transition quicker to IP switches will be much more compelling.  But make no mistake about it – it will be driven only by the carrier’s timeline.  

Implications: 1.      The primary mission of corporations is to make profits for their shareholders.   2.   It is not to “protect freedom of expression” around the world, as stated by the subcommittee chairman in the recent hearing. 3. While large corporations should be expected to adhere to the highest ethical standards possible, they are not responsible for the actions of repressive regimes.  

Analysis: In the history of the world, there has never been a more powerful means of shining a great light on atrocities and human rights violations than the Internet.   Meddling by the U.S. government and forcing companies, including Google, Cisco Systems, and Yahoo to jump through hoops in conducting business will only make it harder for oppressed people to have the potential to communicate their circumstances to the rest of the world.   

These types of Congressional hearings are really about legislators for their own political gain trying to convince Americans that corporations are inherently malevolent.  Hence the promise by the subcommittee chairman in his opening statement that  [i]n future hearings, we will explore the impact of Corporate America on other fundamental human rights.”  He points to the worst kinds of inflammatory rhetoric from thugs like “Cuban Telecommunications Minister, Ramiro Valdes [who] said in February 2007 that the Internet was a ‘tool for global extermination.’” Just to state the obvious, any “tool” can be used for good or for evil.  

Regulations imposed by the federal government involving the Internet is only going to dissuade innovation because of the artificial obstacles that will be placed in the way.  The free market will “develop…technology that allows users to break through firewalls and avoid censorship.”  

The original source states that” [Senator ]Durbin…criticized the ‘intolerably slow’   negotiations by Internet, tech and telecom firms, along with rights groups, that have worked for almost two years on a code of conduct for business dealings with repressive governments.”  But if “you can't have a straight-line policy [just] in China,” how can you do it in including 26 other countries?  

Saints do not run corporations.  It is possible for firms to inadvertently and indirectly provide the means for oppressive acts by dictatorial governments.   And there has to be a bare minimum of accountability regarding crossing ethical boundaries – such as a search engine previously “turning over personal data” to a tyrannical state.   But companies in general are not the ones to be blamed for the merciless actions by others.  And it is not fair and not prudent to punish an entire industry that is providing by far the best mechanism in the history of the world to widely expose crimes to humanity.     

Implications: 1.      It is somewhat ironic that the CDC appears to be more concerned about its ability to poll with fewer landlines then in having reliable transmission in a potential disaster. 2.      One would be hard pressed to get most people aged 45 and over to give up their wireline phones (and people are living longer). 3.      The source article ignores the increasing number of home-based businesses and telecommuting.

Analysis:  All of the incumbent telcos continue to lose access lines.  It explains why at a recent conference on synchronization, Embarq was focused more on IEEE 1588 PTP for its Ethernet services.  

Still, it is likely that a point will be reached in which the drop in residential lines starts to become less severe as it will come down to older folks being the primary users.  There tends to be a psychological dependency on the part of such individuals on a wireline connection.  They are also used to having a consistent level of voice quality.  And as pointed out in the source article, there is more security with a landline.  If the power goes out, the subscriber is supposed to get several hours of continuing telephone service.  Even younger women often seem inclined to want a higher level of reliability.  

Quality is still a major issue at times with both cell and VoIP calls.  It can even be worse   than in the early 1980s when equal access to all long distance providers was given to consumers.  Although it could be harder to hear for a time with certain carriers, at least the transmission continued to be fairly consistent.  With wireless and VoIP, there can be problems with noise, the transmission fading in and out, etc.  There is a reason why to this day that radio programs still demand that guests call in on a landline.  

The difficulties become more acute as more people do business at home.  It is not that infrequent for somebody to be on a conference line without a landline in which the entire voice call transmission does not get through.  Customers are going to only have so much patience with such a poor means of communication.  

In addition, with fiber to the home increasing, it is not out of the question that there will be a resurgence in the use of voice over access lines.  In particular, there may be renewed demand, especially by upper income people, to take advantage of a potentially more pristine level of quality.  (They are paying for the fiber anyway.)    

Implications: 1.      Cbeyond going after the low end of the low end does have its disadvantages. 2.      One of them is that it appears that it led to the significant increase in its churn rate. 3.      Although Ceybond is unlikely to change its approach, a more focused business strategy would probably be helpful.

Analysis:  The San Francisco Business Times called Cbeyond, “a firm hurt by customers sinking in a mortgage-related financial swamp.”  But it is the really small real estate, etc. companies that are more apt to get caught in the mire.  These are the types of customers that Cbeyond targets.  They are the ones more likely not to pay their bills -- or even go belly-up.  Perhaps it should not be too surprising that Cbeyond’s churn rate increased substantially recently.  

Cbeyond’s niche of a niche game plan has always seemed too clever by half.  Apparently, in order to make it work, the CLEC feels compelled to continue to overstretch itself into new cities.  It needs to go from Cbeyond to C-here – get more business out of its most successful markets.  Such a change would require a fair amount of courage on the part of the leadership to admit that the original business model was flawed.   

Just as an aside, in terms of the source article, should it not be taken as a given that a company will do nothing less than “vigorously defend” a lawsuit?    

Implications: 1.      Infinera might be surprised to learn that Ciena is not tending to lose too much sleep about the newcomer.      2.      It is trying to beat Ciena wherever it can. 3.      While it might be somewhat bravado within Ciena, it is not very concerned about Infinera because it views it as more of a competitor just in the long-haul space.

Analysis:  While the Infinera product continues to be compelling for Tier 1 carriers to consider for placement in their networks, it tends to mainly hit the heart of the Ciena CoreStream business.  However, there is hardly a tremendous amount of growth expected in the long-haul DWDM business.  Ciena’s major concentration is on its much higher margin products, the CN 4200 and the CoreDirector.   

Infinera is trying to go after the 4200 business in the regional network.  But the major deployments of these boxes are used to provide access services.  In addition, the 4200 has an advantage in granularity of STS-3c cross-connect capability, while Infinera is at the STS-48 level.    

Assuming Level 3 has not become too much of a guinea pig, it may deploy even more of  Infinera’s gear in the future.  Of course, it will depend on how well the carrier does in growing its company.  

It is also not out of the question that Sprint would consider using Infinera in the future, as it needs to keep costs down as much as possible.  However, it would be more likely with a buyout of Sprint, in which the new parent would probably look to go back to more of a traditional transport model.    

Implications: 1.      As many as 60 percent of Ciena’s CoreDirectors sold to AT&T will be deployed in the former BellSouth footprint this year. 2.      The ex-BellSouth region is expected to get the same number of these boxes next year. 3.      Ciena appears to have orders in place for all of its products that it will likely raise its outlook for 2009 over and above what it does in 2008.

Analysis: Barring a severe recession, Ciena has commitments from its major customers to have an even better 2009. Just with the RBOCs alone, it is not out of the question that for 2008 and 2009 combined, it will sell a high number of Core Directors.  AT&T will be deploying these systems throughout its territory.  Qwest will be installing a small number of these devices as well.  In addition, the previously announced sales to Verizon will drive up the total market that Ciena is likely to see. It would also not be surprising if one or more contracts were announced with large carriers outside of the U.S. for the optical cross-connects.  

Ciena is getting impressive margins on its CoreDirector.  Margins may be  slipping somewhat on the CN 4200 because of competitive  bidding wars.  But they are still at a very respectable level.  

On a side note, Ciena’s management team remains solid.  Any kind of shakeup is hardly expected anytime soon.   

Implications: 1.      Infinera most likely should have been done with getting through the Telcordia OSMINE process by now. 2.      AT&T could buy a low to moderate amount of gear from Infinera. 3.      While Infinera does not have a good chance to displace Ciena’s CoreDirector with a cross-connect, a small field device offered by the newcomer could become popular.

Analysis:  Unsurprisingly, a few snags have appeared because Telcordia usually seems to find any way to get another dollar from all of the equipment vendors.  While the hitches, if any, in the way of Infinera finishing OSMINE are not known, there is little doubt they could have been avoided.  Telcordia has had a reputation for not being totally upfront with its customers all of the time on the actual requirements.  

Partially because of potential purchases from AT&T and the two other RBOCs, Infinera has the possibility of being put in a class above a niche player.  However, in the next five years, it is not likely to reach the status of players such as Ciena, Adtran, or Tellabs. Beyond this period of time, it is not out of the question that Infinera could get into that kind of league.   

Infinera has gone quiet on building a box to compete with Ciena’s CoreDirector.   There have apparently been issues trying to do so and it was probably not quite as easy as initially believed.  One significant problem is that it plays more to having Infinera equipment already in the network.   If a carrier is using Ciena-based equipment, or hardware from any of the other vendors, it is difficult to pull it off.  

Still, Infinera has the potential to build something along the lines of a mini-CoreDirector type of solution on its chip.  While the CoreDirectors are housed in COs, a small cross-connect could be placed into the field.