Are Ciena and Cisco Verizon's next metro optical systems vendors?

Ciena (NYSE: CIEN) and Cisco Systems (NASDAQ: CSCO) "will move to the next phase" of Verizon's next-generation metro optical systems supply competition, according to a note issued January 20 by Simon Leopold and Victor Chiu of financial services firm Raymond James. If true, a win with Verizon would be a significant boost for the two communications technology suppliers – albeit neither would see significant revenues from any contract awards until 2016, the analysts predict.

Verizon seeks a new packet-optical transport platform for the metro that would support data rates of 100 Gbps to start, significant flexibility, and convergence of packet and optical transport, according to Leopold and Chiu. The competition for Verizon's metro business has attracted a who's who of packet-optical transport system vendors; besides Ciena and Cisco, the analysts cite Alcatel-Lucent, Coriant, Fujitsu Network Communications, and Infinera as participants in the competition. [Editor's Note: However, Infinera CEO Thomas Fallon told analysts on a quarterly conference call January 22 that the company did not participate in this RFQ.]

Ciena has been Verizon's primary supplier of 100-Gbps long-haul optical transport systems (see, for example, "Verizon to deploy 100 Gbps on three U.S. routes" and "Verizon details 2013 100-Gbps deployments") and it was natural to handicap them as the favorite for a metro supply role, Leopold and Chiu point out. (Alcatel-Lucent has been Verizon's second source.) Cisco's offerings may have outperformed Ciena's equipment in Verizon's evaluation, the analysts indicate; Coriant's equipment also reportedly performed well, but not well enough to earn a contract at this time.

Leopold and Chiu believe the next phase of the process will involve Ciena and Cisco delivering systems for lab testing and integration into Verizon's operations support systems (OSS). First office applications might come in the first half of this year, but significant revenues from Verizon's metro deployments won't come until next year, the analysts say. They theorize that Verizon may split as much as $200 million or more per year between its metro next-generation optical transmission systems suppliers once deployments fully ramp.

For more information on packet-optical transport systems and suppliers, visit the Lightwave Buyer's Guide.