Tellabs Leapfrogging to WDM-PON is Intriguingfor the Long Term

Implications: 1.      Tellabs is a technology leader in WDM. 2.      In marrying these capabilities along with its PON experience, it could result in a high-margin solution. 3.      Tellabs’ recently announced plan is another indication to the telcos that it is going back to spending the resources on designing innovative products that can realistically make a difference in the market.

Analysis:  Tellabs’ move to WDM-PON gives it a fresh start in the passive optical network equipment space.  While other competitors are battling it out on price for GPON, the vendor will look to develop a product, in which no other solution will be close to being competitive.  Tellabs is hopeful that it will result in something similar to what occurred in moving beyond 1/0 cross-connects to the 5500.  It was able to capture the bulk of the wideband cross-connect market – and milk that opportunity for a good number of years.  

Tellabs is refreshingly being candid in saying that it “believes carriers are five years away  from needing WDM-PON.”  But it is also communicating to the telcos that it intends to get back to being a leading incumbent vendor in telecom for a very long time.  While it seems that Tellabs’ major strength in the future will be more on transport and switching gear beyond the last mile, at a bare minimum, it does not want to leave the impression that it will precipitously abandon the PON space.  

While Alcatel-Lucent and Calix offer high-quality GPON products, the track record of the former has been significantly less than stellar in WDM, while the latter really has no experience with the technology.  And even though Fujitsu has excelled at WDM solutions, at least in North America, it has not been as successful in attempting to penetrate the optical access market.  Therefore, Tellabs, at least on paper, should have a substantial edge over the rest of the market.