Tellabs cashes in on wireless transport

Tellabs reported strong top-line growth for the first quarter, defying predictions among some that its traditional crossconnect business has peaked.

The equipment vendor reported $515 million in total revenue for the quarter, down 1% sequentially but up 18% from a year earlier.

The growth was driven largely by Tellabs' traditional transport business, which most analysts expect to eventually plateau and decline as carriers move to more next-generation architectures. In January, Merrill Lynch analyst Tal Liani suggested that plateau could occur this year. Tellabs CEO Krish Prabhu brushed aside such speculation on today's conference call.

"There's still a lot of life in this business," Prabhu said of the company's crossconnects. "Many have written that this is the ninth inning of this game. But I'm telling you, we're sending multiple batters to the plate, and that doesn't concern me right now."

Tellabs shipped more than 2.8 million T-1 equivalents through its 5500 crossconnect in the first quarter, its largest quarterly shipment since the first quarter of 2001. The majority of the revenue from those shipments--66%--came from wireless carriers (it was only 58% in the previous quarter). While Prabhu predicted strong sales of transport gear in wireless backhaul applications to continue through this year and next as operators adjust their networks for the added capacity needs of 3G services, he made it clear that he was not suggesting that the rate of revenue growth the company saw in the first quarter was necessarily sustainable over the next several quarters. Two of the four major North American wireless operators restrained their spending somewhat last year but at least one of them is spending strongly so far this year, Prabhu said.

"I know a lot of people are concerned about wireless [spending]," Prabhu said. "Believe me, we're more concerned about it than any of you. Our account teams are closely tied to the customers placing orders. We feel good about where we are."

On the access side, Tellabs' 612 optical line terminal is going through final customer acceptance trials now and should start shipping "very soon," Prabhu said. A modification of the 611 ONT Tellabs obtained through the acquisition of Vinci Systems (which allowed Tellabs to break even on ONTs), the 612 includes multimedia-over-coax technology, which Verizon Communications preferred to shorten installation times.

When asked when a decision might come from the two Bell companies (Verizon Communications and AT&T) evaluating gigabit passive optical networking (GPON) equipment vendors, Prabhu said he didn't know. But (without naming the carrier explicitly) he predicted that Verizon would begin appreciable GPON deployment in the second half of 2007.

The Bells' approach to GPON has split into two different strategies requiring two different products, Prabhu said, without naming either carrier. While Verizon Communications is interested in fiber-to-the-premises (FTTP) overbuild networks, AT&T wants a multiservice approach, leaving open the option of taking fiber to the node, curb or home.

"These two strategies call for slightly different platforms, especially if you want to look at network economics," Prabhu said, pointing out that FTTP requires more network intelligence closer to the home.

Tellabs is offering its 1150 multiservice access platform for carriers looking for a flexible platform that can support either FTTP, FTTC or FTTN. For strictly FTTP GPON buildouts, Tellabs will offer its 8865, which sprang from the line of data routers obtained through the acquisition of Vivace Networks. Tellabs has preliminary versions of the 8865 available now for lab evaluation and expects the platform to be available for field trials in the second half of this year.