Tellabs buys AFC

Tellabs is buying Advanced Fibre Communications (AFC) for $1.9 billion, bringing high-speed access gear to Tellabs’ portfolio as well as a five-year contract to provide fiber-to-the-premises (FTTP) gear to Verizon.

The deal, expected to close by the end of the year, will result in a company that can provide both access and transport gear to major carriers. Tellabs historically has been a major supplier of digital cross-connects to the RBOCs.

The acquisition represents another step in the ongoing reshaping of Tellabs to supply packet-based gear to service providers. That transformation has meant both massive layoffs and aggressive acquisitions of technology that allow the company to branch out into new areas. 

Over the past three years the company has bought IP/MPLS service-switch vendor Vivace and next-generation multiplexer vendor Ocular.

The company is pitted against Ciena and others for supplying carriers with optical gear, and seems to have a similar strategy for broadening its product line to generate new revenue. Ciena has acquired edge switch vendor WaveSmith Networks and broadband access vendor Catena, and invested in edge router maker Laurel Networks. Noting these parallels last fall, UBS Warburg Analyst Nikos Theodosopoulos predicted that Tellabs would buy a broadband access company.

AFC in turn has been buying up access technology, most recently the North American Access line of Marconi that includes fiber-to-the-curb (FTTC) gear to augment AFC’s own FTTP equipment. A FTTC contract with BellSouth represented more than half of the Marconi division’s revenues.

When the Tellabs-AFC deal is done, AFC’s Chairman and CEO, John Schofield, will become COO of Tellabs as well as a member of the board of directors. The combined company will have 4,100 employees and have research and development centers in Illinois, California, Florida, Texas and Virginia, and overseas in Denmark and Finland. The company will have sales offices in 29 countries.

Caught in the thick of telecom spending cutbacks, Tellabs went through several rounds of layoffs since 2002, and its sales have dropped from $2.2 billion in 2001 to $981 million last year.