Ribbon tackles growing IP optical opportunities in the rural broadband market

July 31, 2023
Ribbon Communications saw a second-quarter uptick in rural broadband and IP Optical sales while the Cloud & Edge segment declined year-over-year.

Ribbon Communications is finding that the rural broadband market shows a potential growth target as more providers and communities pursue new federal broadband funding programs like BEAD, a trend that rose in the second quarter.

Bruce McClelland, CEO of Ribbon Communications, told investors during its second-quarter earnings call that its product set can address rural providers’ needs as they expand broadband availability.

“In the North American service provider market, we expect the elevated spending by U.S. Rural Broadband providers to continue and likely increase over the next several years as new funding sources become available,” he said. “Our portfolio is a great fit, and we're taking share.”

The company reported that rural broadband was 15% of its North American IP Optical sales. “We've got several other customers in North America, including Rogers up in Canada, that all contribute to that 15% of sales,” McClelland said. “But the Rural Broadband portion was certainly more than half of that in the quarter.”

Rural ramp up

Following what it said was a trend in the first quarter, Ribbon found that rural providers that have received federal funding contributed to a tripling in sales over 2022.

McClelland said its IP Routing and optical transport portfolio is “well suited for these growing networks.”

But he added that the RDOF, ReConnect and BEAD trio could help further bolster rural sales. “Rural has become a strategic market segment for us where we're leveraging the great presence and reputation Ribbon has established,” he said. “Federal funding programs will increase dramatically over the next several years as existing programs such as RDOF and [ReConnect] are augmented by the much larger $45 billion BEAD funding program.”

However, Ribbon cautioned that while existing and new funding sources like BEAD are compelling, rural providers will roll out facilities slowly due to their size. “It's not a lack of funding at this point, particularly as BEAD funding starts to flow into the second half of next year,” McClelland said. “I think the limitations will be more at the pace they can construct and drive fiber. But as the funding envelope increases, our addressable market will certainly expand. So, I expect it to grow well going into next year.”

Optical opportunities, cloud edge challenges
Ribbon’s penetration into the rural segment also contributed to the rise in IP optical sales in North America. The company reported that IP optical sales rose 94 percent year-over-year, representing more than overall segment sales in the quarter.

In the Optical segment, Ribbon continued its trend of double-digit year-over-year growth for the fourth consecutive quarter, with sales increasing 24% year-over-year to $85 million and margins increasing quarter-over-quarter and year-over-year to 31%. “The growth in sales is directly related to the investment we've made in developing new products, resulting in a strong funnel of projects and projected continued growth with the target of breakeven on an adjusted EBITDA basis in the second half of the year. Our focus specifically on IP routing continues to show strong results, with sales of IP routing products increasing 46% quarter-over-quarter and 41% year-over-year.

What is helping drive revenues in the IP Optical segment is the introduction of routing solutions directly addresses a huge addressable market in multiservice edge aggregation and metro routing for both wireline broadband and mobile networks. One of Ribbon’s latest offerings is the Apollo OT940, which supports 100GbE, 400GbE, and future 800GbE transport.

Alternatively, Ribbon saw challenges in its Cloud & Edge segments. As expected, Ribbon said that the approximately 9% year-over-year decline was due to lower sales to Verizon than the record sales in 2022.

But Ribbon did find growth in the Enterprise business, particularly from public sector agencies. Enterprise product sales rose 94% year-over-year, reaching a new high of 44% of overall Cloud & Edge product sales in the quarter. “Ribbon’s enterprise revenue from a very strategic win in the U.S. Federal space, the first of what we believe will be many voice modernization projects,” McClelland said. “Government agencies need to transform their legacy communication infrastructure to a modern cloud-based unified communication platform with high levels of security and survivability. This initial project includes products and services exceeding $10 million, a substantial portion of which was recognized this quarter.” 

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About the Author

Sean Buckley

Sean is responsible for establishing and executing the editorial strategies of Lightwave and Broadband Technology Report across their websites, email newsletters, events, and other information products.

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