Ciena post-MEN

Ciena has been busy since completing the acquisition of Nortel’s Metro Ethernet Networks (MEN) business back in March.

“The 40G and 100G technology were key to the deal and we made sure that the core team was still there”

Tom Mock, Ciena

The company has announced the CN 5150 service aggregation switch, added Nortel’s 40 Gigabit-per-seconds (Gbps) coherent transmission technology to its flagship CN 4200 platform, and announced 140 job cuts, mostly in Europe. US operator AT&T has also selected the company as one of two suppliers of its optical and transport equipment.

Ciena provides optical transport, optical switching and Carrier Ethernet equipment. “We were finding it difficult to fund the required R&D in all three segments,” says Tom Mock, senior vice president of strategic planning at Ciena. “We saw this [the MEN acquisition] as an opportunity to bring good technology on board and give the company the scale needed to execute in these technology areas.”

According to Mock, Ciena was one of several firms interested in the Nortel unit but that Nokia Siemens Networks was the main counter-bidder in the auction process.  Ciena won after agreeing to pay US $773.8 million, gaining MEN’s R&D group and associated sales and marketing.  

In particular, it gained the R&D for optical transport – Nortel’s Optical Multiservice Edge (OME) 6500 product line for 40Gbps and 100Gbps, the Optical Metro 5200 metro and enterprise platform, Carrier Ethernet, and the R&D for software and network management.  Most of these activities are based in Ottawa, Ontario. 

“We had pretty good solutions in optical switching and carrier Ethernet but we were looking for a stronger transport offering, which is what Nortel brought to us,” says Mock. The acquisition, which effectively doubles the company’s size, means that Ciena now plays in a “$18 billion sandbox” comprising optical networking and Ethernet transport and services, according to market research firm Ovum.

Did Ciena secure Nortel’s MEN’s key staff, given the lengthy period – over a year – to complete the acquisition?  “We agreed with Nortel that we would get 2000 staff out of a total of 2300 staff,” says Mock.  

Yet Ciena had no visibility regarding staff since Nortel remained a competitor until the deal was completed.  “We were very pleasantly surprised at the quality of the people who were in MEN,” says Mock. “When companies are in hard times the best people begin to leave, and because of the uncertainty I’m sure some people did leave.”

Ciena claims it secured MEN’s core 40 and 100Gbps team despite announcements such as Infinera's that it had recruited John McNicol, a senior engineer involved in the development of Nortel’s coherent technology. “The 40G and 100G technology were key to the deal and we made sure that the core team was still there,” says Mock.

He also dismisses the view that Nortel’s 100Gbps coherent technology market lead has been eroded due to the uncertainty. Mock claims it has a 12- to 18-month lead and points to Verizon Business’ deployment of Nortel’s 100Gbps system in late 2009 as proof that MEN continued to push the technology.

Strategy

Ciena’s primary focus is on what it calls carrier optical Ethernet, described by Mock as the marrying of the capacity scaling and reliability of optical transport with the ubiquity, flexibility and economics of Ethernet.

For Ciena this translates to three main product lines:

• Packet optical transport, primarily optical transport with some aggregation.
• Packet optical switching based on Ciena’s CoreDirector platform with its time-division multiplexing (TDM) and Ethernet switching, as well as control plane technology.
• Carrier Ethernet service delivery.  

According to Ovum, Ciena is now the third “billion dollar club” optical networking vendor member with a 9% market share, behind Huawei and Alcatel-Lucent, with 24% and 19%, respectively. It also becomes the North American leader, with a 20% share while improving its standing in all other regional markets. In contrast, for Ethernet the combined company had only 3% share in 2009. “We are emerging as a leader in the Carrier Ethernet space,” claims Mock. “In 4Q 2009 we were leading in North America, according to Heavy Reading.”

Ciena sees optical transport and switching blurring but says that most of its customers still see these as separate products. “Both our packet optical switching and packet optical transport platforms can be used in these applications, for example the OME 6500 is looked at as a transport device but it has TDM and packet switching as well,” says Mock. But with time Ciena says optical switching and optical transport product families will increasingly consolidate.

What next?

Having completed the deal, one of the first things Ciena did was determine its product portfolio and tell its operator customers its plans.

Issues set to preoccupy Ciena for the next 12 to 18 months include the integration of Nortel’s 40Gbps and 100Gbps technology onto Ciena’s transport and switching platforms, getting the control plane of Ciena’s switching product integrated onto Nortel’s products, and bringing all the products under common network management.

At OFC/ NFOEC 2010 Ciena showcased Nortel’s OME 6500 transmitting over Ciena’s CN 4200 line system with both being overseen by Ciena’s OnCenter management software. “I wouldn’t point to the network management integration as a finished product but a step along the path,” says Mock.

According to Ovum, the demonstrations included 100Gbps over 1,500km of Corning ultra-low-loss fiber, 100Gbps over 800km in the presence of large and fast polarisation mode dispersion transients, and 40Gbps ultra-long haul transmission over 3,500km.

Ciena has said it expects its business to grow at least at the market rate: 10 to 12 percent yearly.

AT&T domain supplier

In April, AT&T announced that it had selected Ciena as a domain supplier.  AT&T's domain supplier programme involves the operator splitting its networking requirements across several technologies, choosing two players for each domain. AT&T plans to work closely with each domain supplier ensuring that AT&T gains equipment tailored to its requirements while vendors such as Ciena can focus their R&D spending by seeing early the operator’s roadmap.

Did Ciena acquire Nortel to become a domain partner? “We would not make an acquisition to win the business of any one carrier,” says Mock. “But we realised that if we going to be a significant player in next-generation infrastructure we needed a certain critical mass, in portfolio and market coverage globally.

“Did we get selected because of Nortel, it’s hard to say – I’m sure it didn’t hurt - but we've been a supplier to AT&T for 10 years,” says Mock.  He also highlights the operator’s own announcement to explain Ciena’s selection: “They talk about two technologies in particular – 100Gbps technology and Optical Transport Networking (OTN).”

Ovum argues in its “Telecoms in 2020: network infrastructure” report that the future prospects of specialist vendors will be as rosy as full-service ones. “We do view ourselves as specialists even though we’ve essentially doubled the size of the company, and there is absolutely a place for specialist companies as they are genuinely more agile,” says Mock.

Mock also expects further system vendor consolidation. “Optical transport remains fragmented so there are opportunities for further consolidation,” he says. Fragmented in what way? “If you look at the router space there are two dominant players, in optical transport there are 10 – no-one has a 40 to 50 percent market share.”