While Tellabs’ Problems with Access is Not News, They are Also Exaggerated

Implications: .  It has been known for quite a while that Tellabs has been behind in GPON development. 2.  The supplier will need to at least support its installed base of access products for a long time. 3. The conclusion about AT&T’s optical direction and its effect on Tellabs is probably erroneous.  

Analysis:  Because of the “ugly margin profile”, Tellabs had not been aggressive in getting a GPON product out the door.  It is most likely a blessing in disguise that it is “was only named as a second source in Verizon’s GPON RFP.”   

Regarding the idea that Tellabs “should be reviewing their longer term desire to stay in [the FTTP] business," it cannot get out in the foreseeable future.  Verizon will expect the vendor to support its large PON installed base.   

It is also hard to understand the analyst’s surprise that “the decline in Tellabs' BPON OLT and ONT businesses at Verizon will be steeper than [they] previously thought.”  It was inevitable that there would be a precipitous shift to GPON once it became ready and that it would be used in all new applications for FiOS.  

However, the biggest misconception in the source article concerns the statement that “when AT&T acquired Bellsouth, AT&T imposed its own FTTN strategy on its newly acquired territories.  First of all despite having FTTC assets, BellSouth might have been more bullish about FTTN than AT&T as an overall deployment strategy.  Secondly, FTTC is likely to remain a viable option for AT&T for two reasons: 1) It helps to make FTTN work for video with the curb becoming the node, and 2) it allows AT&T to more easily extend all the way to the home when it makes sense.  Moreover, after all this time, it is hard to believe that some analysts are still thinking that AT&T is still married to its original FTTN vision.  One should look for AT&T to do quite a lot of FTTH in large metropolitan and suburban areas for rehab – not just for new growth.  FTTN is likely to be used more in outer suburban and rural parts of the country.  The major point is that to be stating that Tellabs’ FTTC “business really drives to zero," seems way too premature.  

And the notion that Tellabs “[should] get out of residential and into enterprise” would be a major mistake given the dominance of Cisco Systems.  Tellabs needs to refocus on areas that have been its strength – equipment that multiplexes, switches, and grooms concentrated traffic coming from the access portion of the network.  Development of a chip that provides broadband cross-connect capability would be a good place to start.