Qwest’s FTTN rollout winds down for winter

Qwest Communications is slowing its fiber-to-the-node (FTTN) deployment, with plans to reaccelerate it next year, according to Adtran, which supplies the primary equipment for that rollout.

Adtran didn’t name Qwest specifically in its third-quarter conference call today but described the activities of its customers with enough detail to identify them. Qwest contributed more than $26 million to Adtran’s second-quarter revenue but only about $19 million in the third quarter.

“That carrier…is finalizing the [FTTN] deployment for the year as they enter winter,” said Tom Stanton, Adtran’s chief executive officer, adding that such deployments are more challenging in winter weather anyway. “They’ll start early next year buying more equipment -- maybe not deploying it in January or February but buying it to get running again as things thaw. That’s the way they’re talking to us about it.”

A Qwest spokesperson declined to comment on Adtran’s assertions but pointed out that the carrier’s FTTN rollout is “ahead of schedule” and on track to reach the previously stated goal of 1.8 million homes in 20 markets by the end of the year, having reached more than 1 million in August.

The slowdown in Qwest’s orders for FTTN gear led Adtran’s broadband access equipment revenue to drop nearly 27% sequentially in the third quarter. However, healthy growth among its other products – including, perhaps most surprisingly, its legacy HDSL gear – helped the vendor report overall revenue 11% higher than a year earlier.

The general spending environment among carriers cooled across the board in the second half of the third quarter, across all customers and products, Adtran said, but order rates stabilized as the third quarter ended.

“Coming into the first couple weeks of this quarter, we saw a rebound – a pickup in orders,” Stanton said. “But the environment is still somewhat uncertain. The general feedback we’re getting [from carriers] is kind of constrained spending – more constrained than the first part of this year.”

So Adtran is girding for a potentially rocky end to this year, predicting revenue to drop sequentially in a double-digit percentage in the fourth quarter, the result of a normal 9% drop due to seasonality and another mid-single-digit drop due to the ongoing slowdown in carrier spending.

One analyst on today’s call suggested that Adtran’s outlook was overly cautious in light of the aforementioned rebound in orders. “It seems like you’re stretching,” the analyst said. “Things don’t really sound that bad right now.”

Stanton conceded that “the environment is not falling apart,” but added, “In some fairly recent conversations with our carrier customers, there is some nervousness at this point in time.”