Here are some excerpts from a Merrill Lynch report.
Telecom Equip-Wireline: Vendor Shakeup Likely in Next 12-18 Months
• Verizon FTTP Evolution Could Challenge Tellabs, Ciena (Incumbents) in 2006
• Verizon outlined its Fiber to the Premises (FTTP) network evolution plans at the Merrill Lynch Communications Forum held earlier this week in Dallas. Similar to SBC and BellSouth, Verizon plans to adopt the IPTV standard to offer advanced video services in mid to late 2006. We believe the move to IPTV would require new equipment, thereby challenging the incumbency of current vendors, primarily Tellabs (AFC) and Ciena, who have ATM-based equipment. However, we do not expect any near-term impact on either Tellabs or Ciena and note they have adequate time to react, given Verizon's upgrade plans are 9-12 months away.
• Vendor Shake-up Looming in Technology Migration
• In order to support IPTV services and higher speeds, Verizon plans to adopt a new technology called GPON, or Gigabit Passive Optical Network. GPON technology for large-scale field deployment is not available commercially from any vendor, although several vendors are working towards an end-2005/early 2006 general availability. Per our industry checks, vendors closest to a solution are mainly startup companies - Optical Solutions and FlexLight. GPON is not currently supported by the FTTP product from Tellabs (AFC) - the sole supplier of the optical gear to Verizon. Tellabs' product supports Broadband PON (BPON) which is an ATM-based standard, consistent with Verizon's original RFP requirement. While Tellabs' current product is not capable of GPON, the company could chose to focus on GPON to protect the VZ account.
• GPON (IP-Based) Adoption Negatively Impacts Ciena's ATM Switches
• Verizon is currently using Ciena's ATM switch to aggregate the broadband ATM-based traffic in the FTTP network. The switch to IP services, however, could reduce demand for large ATM switches. While Ciena has positioned the ATM switch (DN platform, from WaveSmith acquisition) as a generic IP-switching engine, we believe the bulk of deployments are ATM-based, such as aggregation of DSL or wireless traffic.
• Partnerships Likely to Emerge
• We believe the smaller companies are ahead of larger vendors like Alcatel, Motorola, Tellabs (AFC) in the development of GPON-based products. Verizon's decision to move to GPON, plus potential interest from SBC, could motivate partnerships between large and small vendors since carriers are less likely to buy directly from the smaller vendors. Partnerships could range from a comprehensive OEM deal, to just collaboration on piece parts of the solution such as the optical line terminal (OLT) or optical network terminal (ONT). New players like Lucent and others could emerge.