AT&T Inc. has chosen the three “domain suppliers" – Juniper Networks, Cisco Systems Inc. and Alcatel-Lucent – for its IP/MPLS/Ethernet networks, leaving smaller backhaul vendors Tellabs Inc. and Ciena Corp. to find new ways to keep generating income from the telecom giant.
The announcement comes a year after the industry learned AT&T wanted to trim the number of suppliers it uses, ostensibly to save money while ensuring networks remain interoperable and future-proof as much as possible. AT&T was expected to choose – and it did – market-dominant equipment makers.
That puts the two incumbent suppliers, Tellabs and Ciena, in an unfortunate position.
Tellabs, perhaps most of all, is reeling from AT&T’s decision. The Illinois-based manufacturer long has worked with AT&T on a direct basis in LTE and mobile backhaul – two of AT&T’s fastest-growing segments as 4G wireless becomes the next big thing and as smartphones gobble data. But now Tellabs will partner with Juniper Networks on those buildouts. Investment bank UBS said in a July 30 client memo AT&T will account for about 15 percent of Tellabs’ revenue this year.
Ciena did not immediately return a request for comment about its next steps with AT&T. But UBS said the situation doesn’t look good for Ciena, which is likely to lose most of its AT&T sales to Cisco in 2011. UBS said AT&T’s business will make up about 10 percent of Ciena’s sales in fiscal 2010.
For its part, Tellabs is downplaying the impact of AT&T’s move. A company spokesman wouldn’t provide specific details, instead referring VON/xchange to Tellabs’ July 27 earnings conference call with analysts. That’s when CEO Rob Pullen told worried investors that executives see “good demand from AT&T. We're in the network now. We're seeing growth on the embedded base and we believe we offer the lowest risk and the least-cost … to the Long Term Evolution in the mobile backhaul."
Pullen also emphasized that Tellabs just won a mobile backhaul contract with Russian carrier Megafon, through a partnership with Nokia Siemens Networks.
“We’re particularly optimistic about that future," Pullen said, highlighting that Tellabs is securing business with providers other than AT&T. In fact, this month alone, Tellabs has inked deals with WiMAX operator HiBeam and fiber provider nTelos.
Pullen was responding to Wall Street’s concerns that Tellabs would lose business with AT&T once the “domain suppliers" were made public. The industry has been expecting the announcement for some time and even though it hadn’t come by July 27, shares of Tellabs fell more than 6 percent that day on fear alone. Tellabs stock was down 5.82 percent to $6.96 at about 10:45 a.m. Eastern on Friday.
AT&T’s “domain supplier" agreements come as the carrier plans to spend between $18 billion and $19 billion on capex this year. Much of that money will go toward the gangbusters wireless business.