An Ignoble Experiment

ADTRAN (Nasdaq: ADTN) on Tuesday reported that Q4 2012 sales dropped to $139.7 million year-over-year from $175.2 million as service providers and businesses kept a tight rein on spending.

Net income declined to $3.9 million for the quarter from $31.1 million in Q4 2011, while earnings per share, assuming dilution, were $0.06 for the quarter, compared to $0.48 for the fourth quarter of 2011.

These results were in line with the forecast ADTRAN issued in October after releasing its Q3 2012 results. At that time, the vendor said it expected revenues to decline sequentially in the teens percentage point range. Analysts polled by I/B/E/S expected ADTRAN to report Q4 revenue of $149 million.

Tom Stanton, CEO of ADTRAN, said during the Q4 earnings call that the company attributes the decline to a "spending environment which remained difficult during the quarter."

"Our domestic Tier 1 customers showed some signs of stability in the quarter with all three carriers overcoming normal seasonal trends ending either flat or up for the third quarter--compared to the third quarter," he said. "The Tier 2 and Tier 3 U.S. carrier market came in as expected, showing a normal sequential decline from the third quarter."

From a product revenue standpoint, ADTRAN's three main product lines--carrier systems, business networking and loop access--all saw varying degrees of gains and declines.

The carrier systems business was the hardest hit as revenues declined sequentially from $119.9 million to $101.2 million.

Inside the carrier systems business, broadband access revenues were $70 million, down from $94.4 million in Q3, while optical access rose to $12.3 million from $11.1 million in the third quarter. While sales to Tier 2 service providers declined as expected, they were up over 100 percent on a year-over-year basis.

Likewise, ADTRAN's Internetworking unit, which includes NetVanta & Multi-service Access Gateways, declined sequentially from $35.4 million to $31.6 million.

"By far, the largest impact occurred in our products, both enterprise and carrier, which are sold to carriers," Stanton said. "Of course, our carrier division felt the brunt of this pullback, which manifested itself most strongly and decreased capital expenditures at two substantial Broadband Access customers."

ADTRAN's stock was listed on Wednesday at $21.96 at the close of trading on the Nasdaq stock exchange.

For more:
- see the earnings release
- and the earnings call transcript

Special report: Bonding telcos' love affair with copper through VDSL2

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2. Verizon broadens Terremark's cloud service reach

By Sean Buckley

Terremark, Verizon's (NYSE: VZ) cloud and data center services unit, has expanded the capabilities of its cloud services in its Dallas and London data centers.

The service provider said the new service drive is designed to meet the ongoing demand from its business customers to get access to cloud-based services in the geographies where they reside.

Specifically, Terremark is now offering its federal-grade security controls, which were previously only available through its Enterprise Cloud Federal Edition, to all its commercial customers.

Customers can take advantage of various advanced security technologies such as role-based access controls and certificate-based multi-factor authentication. As a result they will be able to leverage enterprise-class authentication and access control through the use of their certificates and tokens to manage cloud resources.

The company already operates Enterprise Cloud data centers in Amsterdam and in the Netherlands, and the new U.K. center will provide another option for disaster recovery.

Another key point of the cloud enhancement is that enterprises will be able to address the need for hybrid cloud environments with the addition of instance-based compute and storage.

Verizon said that means private companies and government agencies will able to have "greater flexibility and control over migration to and from cloud environments and traditional computing environments without modifying workloads and applications."

Expanding Terremark's reach and capabilities comes at a time when the company is seeing ongoing growth in cloud and data center services.

Verizon won't release its earnings until Jan. 22, but like its counterparts AT&T (NYSE: T) and CenturyLink (NYSE: CTL), the telco reported cloud services were a major revenue driver in its business unit in Q3 2012. Despite the fact that global business revenues declined 3.6 percent year-over-year to $3.8 billion in Q3 2012, cloud and Ethernet services rose 4.4 percent over Q3 2011.

For more:
- see the release

3. Comcast gets into the 100G optical game

By Sean Buckley

Comcast (Nasdaq: CMCSA) on Thursday became the latest service provider to upgrade its core network to 100G with Ciena's (Nasdaq: CIEN) coherent optical platforms.

For this network initiative, the cable operator is enhancing its deployment of Ciena's 6500 Packet-Optical Platform with its third-generation WaveLogic coherent optical line interfaces. One of the features of the WaveLogic technology is it allows service providers like Comcast to move to 400G when ready via software controllable interfaces.

"Adding Ciena's WaveLogic 3 to our already installed 6500 Packet-Optical Platforms lets us leverage that investment to deliver more content, faster Internet speeds and enable new cloud-based applications for our customers, while also providing future core 400G scalability " said Kevin McElearney, senior vice president, Network Engineering, at Comcast Cable, in a release announcing the new agreement with Ciena.

Like other cable MSOs, Comcast is in the midst of balancing the growth of multiple services and applications, including its consumer HDTV video services and Ethernet-based business services.

Similar to other deployments Ciena has conducted with Verizon (NYSE: VZ) and Sprint (NYSE: S), the other benefit of the 6500 platform is cost reduction. The advent of coherent optics and software controls will enable Comcast to reduce the number of network components, such as optical regenerators, it has to manage in its network.

Ciena and Comcast are hardly strangers. Since 2009, the cable MSO has been using the optical vendor's coherent 40G and 100G technologies across its national fiber network.

The vendor has also been a big part of Comcast's ongoing Metro Ethernet drive. In June 2011, the MSO deployed Ciena's Carrier Ethernet Service Delivery (CESD) platforms for its fiber-based Metro Ethernet service targeting medium and large businesses.

Although Ciena has worked with Comcast for a number of years, being able to announce this upgrade is an important milestone for the vendor as it battles the growing presence of its nearest 100G competitors, including Alcatel-Lucent (NYSE: ALU) and Infinera (Nasdaq: INFN), both of which have been adding more Tier 1 service providers to their respective customer rosters.

For more:
- see the release

Special report: In detail: Tracking the 100G path

Read more about: Comcast, 100G, Ciena
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4. AT&T sees acquisition opportunities in Europe

By Sean Buckley

AT&T (NYSE: T) is mulling purchases in Europe as a way to extend its wireless presence in a new market, but any deal could potentially also help the telco enhance its wireline business services unit.

Overall, the Europe, Middle East and Africa (EMEA) region contributes almost 60 percent of telco's international business sales. In Europe, the company serves multinational corporations with six Internet data centers in the U.K., Germany, the Netherlands and France.

Citing people close to the matter, the Wall Street Journal reported AT&T is looking at more potential prospects in the U.K., Germany and the Netherlands. A deal could come before the end of the year.

Potential targets include Everything Everywhere, the U.K. mobile operator owned by France Telecom, and Deutsche Telekom or Dutch incumbent telco KPN.

This is not the first time AT&T has pursued international acquisitions, as the Journal reported it shopped for deals in India and tried to acquire a stake in Telecom Italia.

What's making European carriers a more attractive prospect is the ongoing economic crisis and competition, which may lead to lower prices.

While AT&T won't announce its Q4 2012 earnings until Jan. 24, strategic business revenues, including cloud and Ethernet, grew 11.4 percent in Q3 2012. Overall total business data revenues grew 0.6 percent year-over-year as the company's business customers continue their transition from legacy data products to next-generation data services.

A key area where a European acquisition could enhance AT&T's international wireline holdings is the Ethernet services market.

Already a dominant U.S. Ethernet provider, AT&T has trailed others like Orange Business Services, COLT (LSE: COLT.L), Verizon (NYSE: VZ) and BT (NYSE: BT) on the international Ethernet services front. Vertical Systems Group, which tracked mid-2012 global providers, ranked AT&T fifth in its mid-year Global Ethernet Leaderboard.

The other question is how any potential European investment will complement or interrupt the company's domestic U.S. network upgrade plans. In November 2012, AT&T announced Project Velocity IP (or VIP), a $14 billion network upgrade of its wireless and wireline networks in the United States.

For more:
- the Wall Street Journal has this article (sub. req.)

Read more about: Carrier Ethernet, AT&T
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5. Savvis CEO Ousley gets 1-year contract extension

By Sean Buckley