Once-allied Tellabs and Riverstone now head to head

Aug. 30, 2001--FEATURE--Tellabs has ended its strategic alliance with Riverstone Networks, Inc., and will no longer sell Riverstone products. The companies are now filing suits against each other.

By Mardi Balgochian Scalise, Lightwave Web Editor

Tellabs has ended its strategic alliance with Riverstone Networks, Inc., (Nasdaq: RSTN) and will no longer sell Riverstone products. Tellabs filed a legal complaint against Riverstone on August 28, in Cook County, Ill., for breach of contract, fraud, misappropriation of trade secrets and deceptive trade practices.

Tellabs asserts that Riverstone products have never met contractual requirements for handling voice traffic. Further, Tellabs stated that Riverstone missed multiple product development milestones and still cannot meet the voice requirements.

In turn, Riverstone Networks filed a legal complaint in the Superior Court of the State of California for the County of Santa Clara against Tellabs for breach of contract and other charges, and is seeking damages. The complaint alleges that Tellabs has failed to fulfill its obligations under the Strategic Alliance Agreement between Riverstone and Tellabs. As alleged in the complaint, "Tellabs failed to make its minimum purchases pursuant to . . . the Agreement.

In a conference call, Riverstone Networks' President & CEO Romulus Pereira, said "Obviously the failure of this partnership is disappointing."

Tellabs has been selling Riverstone's next-generation router-based CMTS (cable modem termination system) head-end product that is DOCSIS 1.0 and Euro-DOCSIS certified. Over the past year, the cable market has embraced the DOCSIS standards, fueling the need for IP-centric products such as Riverstone's, to fulfill the delivery of converged voice, video and data services. Riverstone's CMTS products, which have been shipping for the past year, have been successfully deployed by cable operators looking to create a converged infrastructure.

Tellabs now asserts that, per the Strategic Alliance Agreement, Riverstone's product was supposed to be "able to handle voice transmissions without significant hardware upgrade or modification, that the Product was NEBS compliant and would comply with FCC emissions requirements, and that Riverstone would not compete directly with Tellabs for sales of the CMTS Product...or for sales of ancillary or peripheral hardware within the MSO segment of the market."

In Tellabs' motion, the company states that the DOCSIS Product was not field-upgradeable, that Riverstone missed predetermined benchmarks, and that "Riverstone at all times intended to compete directly with Tellabs for sales to Tellabs customers."

Pereira stated Riverstone established a strategic alliance with Tellabs "on the assumption that their presence and relationships in the cable telephony market would help accelerate penetration of our CMTS products." Prompted by a question from a Solomon Smith Barney, Pereira stated that he expects Riverstone, with its strength areas in IP, can, with other partners, sell directly to the cable market to make up for the loss in Tellabs.

"While the relationship started out well and showed early signs of success, Tellabs has been unable to convert these into significant business opportunities," Pereira said. "We believe that Tallabs has been challenged by difficulties in their core business, including recent reductions in workforce and realignment of their business focus. In addition, their slow ramp in IT and routing expertise and a lack of presence in the data MSOs has made it difficult for Tellabs to support a successful sales and marketing effort."

Tellabs now requests the Court to declare that Tellabs has no further obligations to Riverstone under their previous Strategic Alliance Agreement and that Riverstone is "obligated to accept return of all Product shipped to date for a full refund to Tellabs," in addition to paying legal fees and "punitive damages in an amount equal to at least double the compensatory damages."

Pereira reiterated that this action would not affect Riverstone Networks' forward-looking guidance.

About Tellabs:

Tellabs helps communications service providers build converged networks of voice, data and video. For more information, visit www.tellabs.com.

About Riverstone Networks:

Riverstone Networks, Inc., (Nasdaq: RSTN) builds routers that convert raw bandwidth into profitable services for Metropolitan Area Networks. For more information, visit www.riverstonenet.com.

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