VENDORS VIE FOR PRIZE IN BELL BAKE-OFF

Competition is heating up for the contest that some have called “the mother of all RFPs.” In late August, BellSouth, SBC Communications and Verizon Communications narrowed the crowd of vendors vying for a shot at becoming the RBOCs' fiber-to-the-premises equipment provider down to three. Those companies' gear is now in the RBOCs' labs for testing. With analysts estimating the contracts to be worth between $300 million and $400 million per year, vendors both on and off the short list are buzzing.

The vendors proceeding to the lab “bake-off” are Alcatel, Advanced Fibre Communications and the partnership of Quantum Bridge and Motorola, according to analysts at UBS and Lehman Brothers. (Carriers declined to comment on specific vendors being considered.) Alcatel was the least surprising finalist; it essentially owns the RBOC DSL equipment market already and provided the hardware for SBC's high-profile passive optical network trial in Mission Bay, Calif. Many observers regard Alcatel as the favorite, with UBS predicting it will win at least 50% of the market. But unlike the Joint Procurement Committee for DSL in the mid-990s—one of the few other times carriers made such a significant decision together—he RBOCs are expected to choose two vendors for FTTP gear.

AFC was a less obvious choice, said UBS researchers, who predicted in July that Siemens would make the short list instead. AFC's digital loop carriers (DLCs) are widely deployed by SBC, Verizon and hundreds of independent operating companies, but before this summer the vendor had no FTTP product.

AFC claims every DLC it has deployed since the mid-90s can be FTTP-enabled by simply plugging in a PON line card. If that's true, the vendor's vast base of installed DLCs (100,000 in ILEC networks, including RBOCs) could give it a tremendous advantage. But without any FTTP customer deployments to date, AFC will have to prove its claims in the lab—a weakness the other finalists don't share.

The Short List: AFC Entrenched in RBOC networks but a newcomer to FTTP Quantum Bridge/Motorola Could have difficulty integrating with RBOC management software Alcatel Perhaps the favorite, with RBOC penetration and FTTP experience The Long Shots: Fujitsu/Entrisphere Incumbent and startup both designed to target RBOCs Optical Solutions/Cisco Systems Leads FTTP deployment, but not in RBOC networks Siemens Likely bidding with a startup partner, perhaps Quantum Bridge

The Monday following its entry into the bake-off, Quantum Bridge announced its first customer for an FTTP system it developed with Motorola. Five-year-old cable and broadband provider QCOL is deploying the duo's gear to offer voice, video and data in three counties—one each in Pennsylvania, Maryland and West Virginia. Such customer deployments are an advantage, said Jeff Gwynne, Quantum Bridge's senior vice president of marketing.

“Nothing cements a relationship like the currency of a customer,” Gwynne said.

The RBOC RFP is itself opening doors for Quantum Bridge elsewhere, Gwynne said. The RBOCs' endorsement of APON technology (ATM-based passive optical networking, also called BPON for “broadband”) gives Quantum Bridge an edge over competitors with Ethernet-based systems. “The guys looking at FTTx are saying, ‘We better use [APON]. The RBOCs will drive volume; volume will drive performance, features and [lower] costs,’” he said.

As likely contenders for second spot, AFC and Quantum Bridge don't need much coaxing to criticize each other in ways that underscore their own strengths. For example, Motorola's knack for churning out lots of low-cost customer premises equipment is a clear advantage, which may be why Gwynne questioned whether AFC has the muscle to make CPE at the rate RBOCs will deploy them—1 million homes per year starting in 2005 and 2 million per year thereafter, according to UBS.

Ryan Koontz, director of marketing for AFC, dismissed those concerns. “The CPE is much like a line card in a plastic box,” he said. “We make very high-volume, low-cost line cards today to plug into our chassis. So we have a strong aptitude in that area.”

Quantum Bridge lacks the experience to master carrier-grade voice services, Koontz said. “Getting a new voice product approved by an RBOC is a nightmare,” he said. “The bar is painfully high. We've spent tens of millions of dollars in R&D on it.”

UBS echoed that observation, claiming neither Quantum Bridge nor Motorola have expertise in services and doubting the duo's ability to integrate with RBOC management software.

Both Merrill Lynch and Lehman Brothers' Steve Levy upgraded AFC in recent weeks. Levy cited the confident tone with which the company is proclaiming itself to be a “major player” in telecom soon. Koontz went even further, saying, “we're the only incumbent vendor in the RBOCs with any kind of future.”

But the FTTP deal is still anybody's ballgame. A bad lab trial could boot a vendor off the short list, clearing room for vendors such as Siemens or Fujitsu and Fujitsu's reputed bidding partner, the RBOC-focused start-up Entrisphere.

Ironically, neither UBS nor Lehman expects Optical Solutions, the leading provider of domestic FTTP deployments, to win any part of the RBOC deal—despite its track record of serving more than 18,000 homes with live fiber. The reasons why the company didn't make the cut aren't known (and non-disclosure agreements prevent the vendor from discussing it), but RBOCs rarely invest heavily in start-ups. Also, Optical Solutions' bidding partner, Cisco Systems (which contributed an undisclosed portion of the $15 million funding round Optical Solutions closed this month) has a limited relationship with the Bells.

But Optical Solutions could ultimately leapfrog its rivals. The same week it was edged out of the big RFP, the vendor announced that its equipment was being deployed in Rosemount, Minn., at speeds of more than 1 Gb/s using GPON, a still-evolving standard built to accommodate big-bandwidth applications like HDTV. In two years, when RBOCs are ready for GPON, they'll look to Optical Solutions, said the company's CEO, Darryl Ponder, who compares the evolution of PON to development of digital cross-connects.

“Alcatel had the lead in that market, but Tellabs actually won it,” said Ponder, who previously was Alcatel's U.S. marketing chief. “Alcatel had a lead in Sonet, but it was ultimately companies like Fujitsu that ended up with the lion's share of that business. I don't think this is a done deal.”

Ponder also argued that AFC's present success with RBOCs resulted largely from its previous success with rural telcos—the kind of success Optical Solutions is enjoying now.

Above the din of the debate, some analysts caution onlookers that the RBOCs could easily thwart UBS's deployment projections. In fact, UBS wrote in a research note that there may be some dissension among RBOCs—BellSouth preferring fiber-to-the-curb over FTTP, and Verizon being the only carrier interested in more than greenfield buildouts. Additionally, the three carriers already have scaled down their earlier deployment predictions of 5 million homes per year.