The Lightwave Blog

Posted by Stephen Hardy

The Secretary of Commerce on June 19 granted a limited waiver of the American Recovery and Reinvestment Act's "Buy American" provision to most of the broadband equipment that would likely be purchased under the Broadband Technology Opportunities Program (BTOP). The sigh of relief coming from potential BTOP applicants -- not to mention their potential suppliers -- could almost be heard in every corner of the United States (and a few places outside of the country as well).

The BTOP represents the lion's share of the money set aside for telecommunications projects under the Obama Administration's economic stimulus program. ($4.7 billion; the Department of Agriculture's Rural Utilities Service will oversee the dispersal of an additional $2.5 billion.) The "Buy American" provision in the Recovery Act states that no funds, including those earmarked for the BTOP, "may be used for a project for the construction, alteration, maintenance, or repair of a public building or public work unless all of the iron, steel, and manufactured goods used in the project are produced in the United States." Fortunately, the act also provides the head of a federal department or agency with the authority to waive this provision for any of three reasons, including a determination that applying the "Buy American" criterion would be against the public interest.

That's exactly what the Department of Commerce decided. I'd make the case for why this action was necessary, but I don't have to -- the Department has done it for me within its waiver notice (which you can find here). The provision would put an unreasonable burden on potential applicants to prove that the hardware required to build its network was made from materials from U.S. sources, the Department concluded. There are several reasons for this, according to the notice:

1) Much of the equipment used to manage and operate broadband networks is manufactured outside of the United States, using complicated and constantly varying supply chains.
2) The waiver will facilitate the roll out of modern broadband networks incorporating the latest technology, which is a large part of the BTOP's purpose.
3) As such networks are built and operated, jobs will be created.
4) While the Office of Management and Budget "has clarified which countries would be exempt rom the Buy American provision, some of the key countries that produce broadband equipment would not be exempt."
5) The broadband industry is "very dynamic and global" according to the notice, and therefore the equipment used in a project can change in the midst of network rollout.

The waiver covers broadband switching equipment, routing equipment, transport equipment, access equipment, CPE and end-user devices, and billing/operations systems. It does not cover fiber and cable, the notice emphasizes. However, applicants can apply for a special waiver as part of their applications should they feel it necessary.

It's gratifying that the Department of Commerce has shown some common sense in determing how best to meet the twin goals of aiding U.S. businesses and bringing broadband capabilties to currently underserved areas of the country. Now if we could just get the application process rolling...

Labels: BTOP, stimulus

Posted by Stephen Hardy

Speaking to a group of media and analysts after last Friday's OIF interoperability demo at Verizon's Waltham, MA, facility, the carrier's vice president of network architecture, Stuart Elby, said he expects that at least one of his current vendors, and perhaps as many as three, will deliver tenable 100-Gbps networking platforms by the end of this year. He added that he expects the platforms will be based on technology "like" the dual-polarized QPSK with coherent detection around which the OIF has rallied the industry (including Verizon), saying he believes the platforms will be "as close to that as exists" at the time.

Elby also said he expects that Verizon will deploy some of the equipment it receives, but not in large numbers. As was the case with 40G, he expects the first generation of 100G platforms will be extremely expensive, and greater deployment will wait until further iterations of the technology reduce 100G's price tag. He said he had doubts that 40G prices would ever reach a level 2.5 times that of 10G, partly because the price of 10G technology continues to shrink. He said that 100G might enjoy a more aggressive downward cost run than 40G, due to greater deployment in data center environments.

Labels: 100G, 40G, Verizon

Posted by Stephen Hardy

AT&T;'s response to inquiries regarding Morgan Keegan & Co.'s note yesterday regarding a plan to reduce its supplier count to two for each of about 14 technology domains: "We have no comment on this."

Simon Leopold, communications equipment analyst and managing director at the broker-dealer, issued a note yesterday saying he was starting to take seriously information he had received regarding a potential AT&T; plan to drastically reduce the number of equipment vendors with which the company does business. The goal, based on what Leopold said he had heard, was to have only two supplier in each of "roughly" 14 technology domains. (Leopold did not list the domains in the note.) Naturally, it seems likely that AT&T; would end up with fewer than 28 suppliers, on the assumption that some suppliers would remain viable in multiple domains.

The initiative has three goals, according to the note: cost savings, risk reduction (particularly in the face of Nortel's bankruptcy filing), and streamlining of major projects. AT&T;'s success with Alcatel-Lucent on the U-Verse roll out served as a proof point of this last element, Leopold suggests.

While Leopold asserts, "[w]e consider it premature to panic," this news, if true, clearly would make systems suppliers nervous -- particularly smaller ones whose narrower product lines would potentially lessen their opportunities to stay engaged.

As I've indicated above, AT&T; isn't shedding light on Leopold's report. (The quote above came courtesy of Jenny Bridges, who handles trade media inquiries at the carrier.) If anyone has any further info, I'm all ears.

Labels: ATT, supplier reduction

Posted by Stephen Hardy

Ciena announced unaudited results for fiscal second quarter 2009 today. Not surprisingly, the company reported down revenue; what was perhaps unexpected was a whopping GAAP net loss of $503.2 million, most of which was a non-cash charge of $455.7 million for impairment of goodwill.

The magnitude of the loss may have obscured the somewhat hopeful note of the commentary:

"Our fiscal second quarter was particularly challenging, reflecting the difficult macro and industry environment and continued delays in customer spending," said Gary Smith, Ciena's CEO and president. "While recent service providers' public commentary about expected annual capital expenditures has given the industry reason to be more optimistic about the second half of the year, our customers continue to spend cautiously, and as a result, our visibility remains limited. However, based on our direct conversations with customers and supported by trends we are seeing currently in the business, including recently improved order flow, we expect to deliver sequential revenue growth in our fiscal third quarter."

The question, of course, is whether that rebound will occur and will it be significant. Simon Leopold, communications equipment analyst at Morgan Keegan & Co., still thinks Ciena is a good bet. "We maintain our Outperform rating on Ciena," he wrote in a note issued today. "Despite the poor April quarter, good sequential improvement leaves us optimistic. Challenging visibility remains, but sequential improvement, a new product cycle, net cash per share near $3 and a CY10 EV to sales of 1.0x suggests the stock has upside potential. One could argue for a fair value near $15 based on an EV/Sales ratio of 1.5x."

Labels: Ciena