UBS: Verizon GPON deal could be three-way

With a decision reportedly imminent in Verizon Communications' search for suppliers of gigabit passive optical networking equipment, a trio of vendors could initially share the prize, according to UBS Investment Research.

In a research note issued this morning, UBS analyst Nikos Theodosopoulos said Verizon is likely to pick Alcatel, Motorola and Tellabs as its GPON suppliers in a twist on the carrier's traditional dual-sourcing practices.

Verizon originally chose Advanced Fibre Communications (later acquired by Tellabs) and Motorola to supply its current PON deployment, following the dual-source method large carriers often use to promote competition among suppliers and avoid over-reliance on a single vendor. As is common in such arrangements, analysts believe Tellabs plays a dominant role, handling at least 80% of that business.

More than one analyst has suggested in recent months that Verizon, AT&T and BellSouth have narrowed their joint search to five GPON vendors: Alcatel, Motorola, Tellabs, Hitachi Telecom USA and Entrisphere (partnered with Ericsson).

And while Theodosopoulos previously predicted that Verizon would pick two of the three incumbent Bell PON suppliers (Alcatel being the third, supplying AT&T with fiber-to-the-premises as well as fiber-to-the-node gear), he now believes all three will move on to Verizon field trials.

Analysts have long said the Bell GPON contest will be much more competitive than the PON contest was, with pricing expected to dip below even current prices for much lower-speed PON equipment. But a three-way supplier structure could make it even more competitive. Over time, Theodosopoulos wrote, only two of the three vendors would likely retain long-term positions with Verizon.

Such a deal would obviously have significant implications for all three vendors. For Tellabs, it could mean a relative decrease in its share of Verizon's fiber access business (however AT&T's selection is expected soon, too). For Alcatel, it would be a great achievement to have penetrated another Bell company at the expense of its smaller rival, Tellabs. And for Motorola, analysts have suggested, the deal could determine whether or not the company stays in the wireline equipment business at all.

Verizon should formally choose its GPON vendors sometime in the next two to three weeks, Theodosopoulos wrote.