Handicapping the FTTP market

The joint request for proposal (RFP) recently issued by BellSouth, SBC Communications, and Verizon has caused a whirlwind of activity in the fiber to the premises (FTTP) space, particularly among vendors of passive-optical-network (PON) equipment. With just four weeks to complete their proposals, PON startups have scrambled to partner with established vendors and vice versa, making any handicapping of the market difficult at best.

According to Michael Howard, principle analyst and co-founder of Infonetics Research (San Jose, CA), there is already a clear frontrunner: Alcatel (Paris). Daniel Briere, chief executive of business and market strategist TeleChoice (www.telechoice.com), agrees that Alcatel has "primo positioning," thanks partly to its history with the RBOCs. In 1996, a consortium of four RBOCs issued a similar joint RFP for ADSL systems and selected Alcatel the primary winner of that contract, catapulting the company from "near nonplayer to strategic partner," wrote Briere in a recent TeleSparks online report published by TeleChoice.

Alcatel certainly has size and visibility on its side. The company has the largest installed base of access equipment in the U.S., and its 7340 Fiber to the User (FTTU) system has been available for more than a year. SBC, in fact, chose the 7340 FTTU platform for its Mission Bay project in San Francisco back in July 2002.

The folks at UBS Warburg believe the contract will go to a consortium composed of Alcatel and Scientific-Atlanta (Atlanta). The latter's video expertise would help round out Alcatel's FTTP offering.

Of course, Alcatel isn't the only established vendor with its eyes on the FTTP prize; others likely in the mix are Lucent Technologies, Nortel Networks, Siemens, Marconi, and possibly Ericsson—though not all these companies have a PON offering, which leads many industry insiders to predict a flurry—or, as Briere puts it, "a blizzard"—of partnerships in the near future.

"A partnership allows the incumbent vendor to leverage its relationships and its sales channels, and it provides an opportunity for a small company to penetrate a big account," explains Simon Leopold, equity research, telecommunications equipment, at Merrill Lynch (New York City). "I think this is essentially an opportunity that fits all the criteria, where you have a private company like Quantum Bridge, for example, that may have a good technology but doesn't have the sales channel or the history that an RBOC-type carrier would be looking for."

One startup whose name seems to appear at or near the top of most analysts' lists is Quantum Bridge Communications (Andover, MA). "It's certainly a company that has caught our attention," admits Leopold. "We know they are doing a lot of work with Telcordia as part of the OSMINE process, which is obviously a key gating function to get into those carriers." Quantum Bridge has several cable MSO [multiple-system-operator] contracts to its name, and it recently teamed with Motorola's Broadband Communications Sector to deliver a complete line of fiber to the home (FTTH) products for network service providers. According to UBS Warburg, incumbent vendor Lucent is likely to partner with Quantum Bridge/Motorola.

In terms of customer traction, Optical Solutions (Minneapolis) is "arguably the U.S. market leader," says the TeleSparks report. The vendor has won contracts from a slew of rural municipalities, carriers, and telephone companies and is especially well funded, having raised more than $150 million since its inception in 1998. Optical Solutions is likely to partner with Nortel, contends Nikos Theodosopoulos, wireline equipment and data networking analyst at UBS Warburg. He does not regard this partnership as particularly strong, however. "Nortel exited the access market in the US two years ago, and I think they will face some credibility issues," he says, adding that Nortel should bid aggressively nevertheless.

Wave7 Optics (Alpharetta, GA), though not exactly a PON vendor, is "coming on strong," according to TeleChoice. Its patented technology, based on hybrid fiber/coax, has caught the attention of telephone companies and carriers in the United States and abroad.

If OSMINE certification is a deciding factor, Quantum Bridge will have an edge, as will Paceon, a division of Mitsubishi Electric & Electronics USA that completed the OSMINE process in March 2002. Iamba Networks (Ra'anana, Israel) has also taken steps toward certification.

The initial survey sent to vendors sought information about both ATM PON and Ethernet PON (EPON). Several analysts, including Merrill Lynch's Leopold, believe that ATM "is favored" because the RBOCs have a large existing ATM base. That said, EPON vendors "can't be ruled out," says Howard, who cites Alloptic (Livermore, CA)—"it has Pirelli as a backer, invester, and distribution partner in Europe and Asia," he notes.

Fellow EPON vendor Salira Optical Solutions (Santa Clara, CA) is also a possibility.

Others in the running include Vinci Systems (Vienna, VA); Terawave Communications (Hayward, CA); gigabit PON vendor FlexLight Networks (Kennesaw, GA); and Zhone Technologies (Oakland), which acquired broadband access equipment manufacturer NEC Eluminant in February. Incumbent access players Advanced Fibre Communications (AFC—Petaluma, CA) and Adtran (Huntsville, AL) could be in the mix as well. ..

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