Ciena Sees Red at BT

Two things happened today. Ciena (CIEN) inked their contract with British Telecom for the BT’s 21CN project. And Marconi shareholders approved the sale of the company to Ericsson. Many readers know these two minor events have a bellwether common denominator - a willingness to meet the new price targets set by Chinese competition.

Just as Vietnam and Afghanistan were proxy wars for the 20th century superpowers, BT’s 21CN will be the first full-blown encounter between incumbent and Chinese research, customer service, accounting practices, and cost structures.

BT (BT) is spending 10BB British Pounds to rewire the core of their network, in essence a full forklift upgrade of Britain’s transport infrastructure. It’s a big project and has been well covered in the press, particularly by Lightreading. The technology is ultra sexy (WDM, Digital Wrapper, MPLS, GFP, the list goes on and on), and while I like cool telecom technology the business match up and the way the outcome will resonate into markets is far more interesting.

We are deeply interested in the impact Chinese hardware will have on the global telecom equipment market. Huawei and ZTE make noise about their big push into overseas markets but the reality is they have yet to ship big volume into the infrastructure of any Tier One telco outside of China. The first real debutante ball for Huawei (and a proxy for ZTE) in a foreign market is 21CN.

Huawei was selected along with Ciena to supply the WDM transport equipment. Huawei was also selected alongside Fujitsu in order to supply access equipment. It’s the first time we’re going to see a match up between the high cost western suppliers and the low cost suppliers from China. The first big shock in this deal came when BT decided against using - Marconi, their incumbent supplier. Marconi went on the record as saying they simply could not hit the price targets BT wanted. They probably figured BT would pay more to use a trusted supplier and negotiated to that end. Oops.

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