Product Assessment: Report Date: Analyst: Market: Class: Current Perspective:

Alcatel-Lucent - ISAM 7342 FTTU

January 05, 2010 Keith, Erik Broadband Infrastructure Fiber to the Premises (FTTP)

Summary
Buying Criteria

Current Perspective Alcatel-Lucents Intelligent Services Access Manager (ISAM) 7342 fiber-to-the-user (FTTU) solution set is very threatening to competitors in the overall FTTP and GPON markets. The ISAM series, which also includes the 7330 FTTN and 7302 central office IP DSLAM solutions (along with several other unique form factors), has enabled Alcatel-Lucent to garner more than 210 ISAM customer wins to date, including an impressive number of Tier 1 operators worldwide. Alcatel-Lucents FTTP customers number approximately 100 as of Q4 2009 (including more than 80 GPON deployments), with such notable Tier 1 operators as France Telecom (FT) and Verizon being some of the first 7342 customers. In terms of market validation, Alcatel-Lucent garnered the top position in the global GPON market for CY 2008 and through most of 2009, according to multiple industry sources (DellOros Q3 2009 report ranks Alcatel-Lucent number two behind Huawei, for the first time). In terms of recent market events, Alcatel-Lucent made a big splash at Broadband World Forum Europe in September 2009 in its hometown (Paris) with a handful of key announcements, with its 10G GPON demo (as backhaul for LTE) generating the most visibility. The company also highlighted the opening of its ONT management and control interfaces (OMCI), designed to catalyze/accelerate GPON deployments via expanded ONT interoperability. On the customer front, FTTx/FTTH wins with TeliaSonera, EnergiMidt, OONO, and Manx Telecom illustrate AlcatelLucents momentum in the highly competitive European fixed access market. In terms of competitive concerns, several key rivals have focused on the fact that although Alcatel-Lucents 7342 can be configured with 2 x 250 Gbps network uplinks for 500 Gbps of uplink capacity, the 7342s limitation of two NT cards per chassis, in combination with 10 Gbps of per-slot throughput, in fact limits the capacity of the system to 40 Gbps (or 20 Gbps in carrier-class, redundant mode). As such, the 7342 becomes a blocking system at anything above 40 Gbps. Also, while Alcatel-Lucent cites 100 FTTP deployments (of which more than 80 are

GPON), rivals can assert that only a handful of these customers are Tier 1 operators. Alcatel-Lucent has also seen its share of the Verizon GPON network eroded by the so-called secondary supplier (Motorola); in fact, as of Q3 2009, Alcatel-Lucent became the de facto secondary-supplier for the Verizon GPON network, shipping less than 50% of all new GPON gear going into the FiOS network (behind Motorola). However, despite these areas of concern, Alcatel-Lucent remains the vendor to beat in the global fixed access market, where its massive installed base of copper access lines (i.e., extensive operationalization of its telco access gear) provides the company with a strong incumbency advantage. Nevertheless, in the brave new fixed access world, vendors such as Huawei, ZTE, and Ericsson are proving to be very challenging rivals for Alcatel-Lucent, which must keep pushing forward on the technology front in order to remain the fixed access frontrunner.

Strengths and Weaknesses

Strengths Alcatel-Lucent made a big splash at Broadband World Forum Europe in September 2009 in its hometown (Paris) with a handful of key announcements, with the 10G GPON demo (as backhaul for LTE) generating the most press. The company also highlighted the opening of its ONT management and control interfaces (OMCI), designed to catalyze/accelerate GPON deployments via expanded ONT interoperability. On the customer front, FTTx/FTTH wins with TeliaSonera, EnergiMidt, OONO, and Manx Telecom illustrate Alcatel-Lucents momentum in the highly competitive European fixed access market. A key strength of Alcatel-Lucents ISAM 7342 platform is its high-capacity NT module, which debuted in Q1 2008 and supports up to 250 Gbps of switching/throughput capacity (and 500 Gbps/chassis via 2 x NT modules), as well as the ability to implement load sharing between two NT modules in a single shelf. Coupled with the 7342 platforms corollary non-blocking capability, the new NT module enables operators to deliver advanced triple/multi-play service bundles, which include multi-stream HDTV and HD video on demand (VoD). The ISAM 7342 NT module features two 10 Gbps and two 1 Gbps uplinks per NT (facilitating the non-blocking capabilities of the NT), and it can also be deployed in 7342 platforms that are already in operator networks, providing current customers with a strong, cost-effective upgrade proposition for their existing Alcatel-Lucent FTTU systems. In terms of non-blocking bandwidthper-subscriber support, with two NT modules, the 7342 can support 1,800 x 100 Mbps GPON connections (in the 18-slot ANSI chassis), one of the highest metrics in this comparison. Alcatel-Lucents Release 4.6 for the 7342 ISAM includes RSSI optical test and measurement enhancement, yielding benefits for operators Weaknesses Although Alcatel-Lucents 7342 can be configured with 2 x 250 Gbps network uplinks for 500 Gbps of uplink capacity, the 7342s limitation of two network uplink cards per chassis, in combination with 10 Gbps of per-slot throughput, in fact limits the capacity of the system to 40 Gbps (or 20 Gbps in carrier-class, redundant mode). As such, the 7342 becomes a blocking system at anything above 40 Gbps. While Alcatel-Lucent cites 100 FTTP deployments (of which more than 80 are GPON), rivals can assert that only a handful of these customers are Tier 1 operators. Alcatel-Lucent has also seen its share of the Verizon GPON network eroded by the so-called secondary supplier (i.e., Motorola). In fact, as of Q3 2009, Alcatel-Lucent became the de facto secondarysupplier for the Verizon GPON network, shipping less than 50% of all new GPON gear going into the FiOS network (behind Motorola). While Alcatel-Lucent has expanded its ONT portfolio repeatedly, on several occasions, the company has lost out on operator business due to lack of ability to deliver the requisite ONT solution on time. Also, Alcatel-Lucents September 2009 announcement highlighting the opening up of its ONT Management Control Interface (OMCI) in order to promote interoperability actually exposed the fact that Alcatel-Lucents ONTs do not comply with the full ITU-T FSAN interoperability specifications between GPON OLTs and ONTs. Despite the Release 4.4 upgrades which dramatically increased Alcatel-Lucents 7342 port density and scalability metrics, rival vendors may assert that the 7342 still supports average density subscriber ONT metrics, i.e., 2,304 ONTs in an 18-slot ANSI chassis and 1,792 ONTs in a 14-slot ETSI chassis, assuming a 1:32 split ratio (the benchmark for this comparison). As such, the 7342 ONT metrics are

such as improving fault isolation techniques for identifying potential problems in areas such as laser bias, temperature, and signal strength within the optical portion of the network as well as detecting transceiver degradation via optical transceiver monitoring (OTM). Alcatel-Lucents 7342 ISAM GPON solution set has been deployed in more than 80 operator networks to date, and Alcatel-Lucent ISAM solutions support more than 100 FTTP networks worldwide, specifically in the EMEA, North American, and APAC regions. AT&T also plans to use the 7342 FTTU platform (along with Ericssons EDA 1500) to deliver GPON-based triple play services to more than 1 million greenfield households (new builds) under the Uverse service banner. Alcatel-Lucent is the incumbent DSL access supplier to the majority of the worlds top 70 incumbent carriers, with a massive installed base. In fact, even conservative projections estimate that Alcatel-Lucent is on track to surpass the 200 million-DSL port shipments benchmark by the end of 2009. This effectively places Alcatel-Lucent in the drivers seat for corollary success in the global FTTP market, as operators transition from copper to deep fiber access infrastructures that include both active and passive FTTP systems.

not class-leading, but this supposed deficiency has not seemed to matter to Alcatel-Lucents 100 FTTP customers. Rivals have asserted that not all of AlcatelLucents operator customers are satisfied with the vendors approach to offering upgrades to the existing ISAM gear. Specifically, while Alcatel-Lucent can compete with all comers when it comes to initial sales/contract pricing (including, most notably Huawei and ZTE), the additional evolutionary upgrades to the ISAM series can be more costly than expected.

Point and Counterpoint

Point Rivals have asserted that not all of AlcatelLucents operator customers are satisfied with the vendors approach to offering upgrades to the existing ISAM gear. Specifically, while Alcatel-Lucent can compete with all comers when it comes to initial sales/contract pricing (even Huawei and ZTE), the additional evolutionary upgrades to the ISAM series can be more costly than expected. Counterpoint Alcatel-Lucent can counter this assertion by citing the fact that the company has the lowest return rate in the wireline access market (CO DSLAMs, FTTx, and FTTP), a prime indicator of customer satisfaction with the companys product line. Given Alcatel-Lucents substantial lead in terms of total FTTP and GPON customers (again, over 100 and 80, respectively), and feedback from the operator community, this claim is justifiable. Counterpoint Alcatel-Lucent can point out that, despite the so-called limitations of its 7342 ISAM fiber access platform, operators have nevertheless selected Alcatel-Lucents FTTP and GPON solutions in droves, especially when compared to vendors such as Ericsson, which has yet to mount a formidable challenge to the leading vendors in the FTTP/GPON segment in terms of customer base and market share, despite its

Point Ericsson and other rival vendors can point out that while Alcatel-Lucents 7342 can be configured with 2 x 250 Gbps network uplinks for 500 Gbps of uplink capacity, the 7342s limitation of two network uplink cards per chassis, in combination with 10 Gbps of per-slot throughput, in fact limits the capacity of the system to 40 Gbps (or 20 Gbps in carrier-class, redundant mode). As such, the 7342 becomes a

blocking system at anything above 40 Gbps.

multiple on paper wins (where actual deployments have yet to begin, e.g., AT&T). Counterpoint Alcatel-Lucent can simply point out that even if the company accounts for only about 50% of the Verizon GPON network build, because the Verizon FiOS network is the largest GPON deployment to date, Alcatel-Lucent is still very well-positioned within the global GPON market (i.e., ranking first overall for most of 2008 and 2009 according to multiple industry sources). Moreover, because of the housing market downturn within the U.S., AT&Ts plan for 1 million greenfield GPON customers has been put on the back burner for now, and this hurts Alcatel-Lucent a lot less than it hurts Ericsson, since Alcatel-Lucents FTTP customer/market traction is dramatically greater (and thereby more insulated) from such events.

Point Rival vendors can assert that while AlcatelLucent got off to a great start in North America by winning both the Verizon and AT&T GPON accounts, as of Q1 2009, Motorola has drawn even with Alcatel-Lucent within the Verizon account, and the word on the street is that Ericssons EDA 1500 platform will garner the majority of the AT&T GPON network build-out.

Buying/Selecting Criteria
Application Support/System Robustness

Alcatel-Lucents 7342 ISAM Release 4.4 features support for IGMPv3, a portable software module that, along with other advanced multicast service enablers, provides operators with a robust channel-change solution as they look to deliver and optimize their IPTV/video service delivery capabilities. This is especially critical in regions such as North America where the demand for multi-stream high-definition television (HDTV) e.g., up to three simultaneous streams per household is already strong and will be pervasive moving forward. The combination of solid density/scalability and class-leading throughput capacity metrics, as well as support for IGMPv3 and related Release 4.4 capabilities (e.g., VoIP service enablers), are key differentiators for AlcatelLucent from an application support perspective, as evidenced by the 7342 systems support of very large-scale consumer (and business-class) multi-play service packages, in virtually all of its FTTP customer networks. Alcatel-Lucent can also highlight its market-leading status in the FTTP sector (with more than 100 FTTP customers and 80 GPON customers as of Q4 2009), in virtually every geographic market across the globe, as a dramatic proof point for the commercial viability of its 7342 FTTU solution set. There is simply no other vendor in this market that can come close to matching Alcatel-Lucent in terms of wireline broadband installed base (i.e., in Q4 2009, Alcatel-Lucent surpassed the 200 million-DSL port shipment benchmark), and its tremendous success in the still-early stages of the FTTP market is a very strong indicator of the value its 7342 series from an operator/market standpoint. Alcatel-Lucent asserts the lowest return rate in the wireline access market (CO DSLAMs, FTTx, and FTTP), a prime indicator of customer satisfaction with the companys product line. Given Alcatel-Lucents substantial lead in terms of cumulative fixed access customers, and feedback from the operator community, this claim is justifiable.

Backplane/System Throughput Capacity

Although Alcatel-Lucents 7342 can be configured with 2 x 250 Gbps network uplinks for 500 Gbps of uplink

capacity, the 7342s limitation of two network uplink cards per chassis, in combination with 10 Gbps of per slot throughput, in fact limits the capacity of the system to 40 Gbps (or 20 Gbps in carrier-class, redundant mode). As such, the 7342 becomes a blocking system at anything above 40 Gbps. Alcatel-Lucents NT module (announced in Q1 2008) supports up to 250 Gbps of switching/throughput capacity (and with 2 x 250 Gbps modules per chassis, up to 500 Gbps of total throughput), as well as the ability to implement load sharing between two NT modules in a single shelf. Coupled with the 7342 platforms corollary non-blocking capability, the new NT module enables operators to deliver advanced triple/multi-play service bundles, which include multi-stream HDTV and HD video on demand (VoD). The 7342 NT module also features two 10 Gbps and two 1 Gbps uplinks per NT (facilitating the non-blocking capabilities of the NT), and it can also be deployed in 7342 platforms that are already in operator networks, providing current customers with a strong, cost-effective upgrade proposition for their existing Alcatel-Lucent FTTU systems.

Density/Scalability

The 18-slot ANSI-spec 7342 ISAM FTTU chassis can support 2,304 subscribers when configured to terminate 32 subscribers per PON facility; this PON ONT support capacity was enabled by 7342 Release 4.4 (June 2007), which added four-port OLT cards to the 7342 solution set and addressed a major previous weakness of the 7342 series. The 14-slot ETSI-spec 7342 ISAM FTTU chassis supports 1,792 PON ONTs via a 1:32 split ratio. Again, this density/scalability is facilitated by the four-port OLT line cards as part of Release 4.4, enabling Alcatel-Lucent to offer competitive PON OLT density/scalability metrics vis--vis rival vendor FTTP solutions. Alcatel-Lucents 7342 ISAM Release 4.4, by doubling the density/scalability and system/per-slot throughput capacities, eliminated one of the 7342 solution sets previous weaknesses. With the four-port GPON OLT line cards, the 7342s density/scalability doubles to 72 OLT ports per 18-slot ANSI chassis and 56 per 14-slot ETSI chassis, which with a 1:32 split supports 2,304 ONTs per chassis (ANSI) and 1,792 per chassis (ETSI), and double these amounts with a 1:64 split ratio.

Deployment Flexibility

Alcatel-Lucents newest 7342 ISAM FTTU system capabilities (Release 4.6, announced in September 2008), such as the received signal strength indication (RSSI) optical test and measurement enhancements, support of MEF-based services (such as E-line services), and IEEE 1588 timing for remote GPON OLT synchronization applications, further extend the deployment flexibility of the 7342 series. Operator benefits from Release 4.6 include proactive detection of potential transceiver degradation, refined and improved fault isolation, further improving the operator business case for accelerating the replacement of TDMbased T1/E1 and private line facilities with GPON-based E-line services, and avoiding the deployment of extra local bit clock gear for remote cabinet environments (e.g., mobile backhaul). The RSSI optical test and measurement enhancements are available on four-port GPON cards and ONTs according to customer preference, again extending more deployment flexibility to operators. The Alcatel-Lucent 7342 ISAM FTTU uses the same chassis and common modules as the extensively deployed 730x platforms and LiteSpan DLC, as well as the extensively operationalized 5520 Access Management System (AMS) in both the ANSI and ETSI markets. The 7342 FTTU ISAM platform, with Release 4.4, features full support for Internet group management protocol (IGMP) version 3 proxy/snooping functions (per the Internet Engineering Task Force [IETF] RFC 2236 specification) to ensure rapid channel changes for IPTV while minimizing the burden of transport of the same content to multiple subscribers.

ONT Range

 While Alcatel-Lucent has expanded its ONT portfolio repeatedly, on several occasions, the company has lost out on operator business due to lack of ability to deliver the requisite ONT solution on time. Moreover, AlcatelLucents September 2009 announcement highlighting the opening up of its ONT Management Control Interface (OMCI) in order to promote interoperability actually exposed the fact that Alcatel-Lucents ONTs do not comply with the full ITU-T FSAN interoperability specifications between GPON OLTs and ONTs. While Alcatel-Lucents publishing of the OMCI v1 will stimulate GPON interoperability (as well as the production of less expensive ONTs), this is an advantage only for Alcatel-Lucents GPON customers, as interoperability is only between the companys ISAM 7342 OLT platform and any qualifying third-party ONTs. Another key factor for operators and ONT vendors to consider is that the full OMCI specification (beyond v1) will not be published, and will only be available to specific partners on a case-by-case basis. As such, rivals can assert that this interoperability offering by Alcatel-Lucent has some inherent limitations which may in turn compromise the potential cost savings generated. As part of its eco-sustainability initiative, Alcatel-Lucent introduced a new line of ONTs in February 2009 which utilize up to 30% less power than the companys previous generation of ONTs (meeting the European Unions Code of Conduct specifications through 2011), due to more efficient transceivers and the leveraging of Systemon-Chip (SoC) technology. The new ONTs, of which there are four indoor-only models (which were generally available in ETSI specification in Q1 2009), feature a GigE (WAN) interface and a higher degree of integration, and they are available with integrated residential gateway (RG) functionality. Alcatel-Lucents Release 4.4 also added three new ONTs to the portfolio, designed specifically to address the residential, MDU, and business-class sectors. The addition of these subscriber-premises solutions expands Alcatel-Lucents ONT range as well as the operators service deployment flexibility; for example, the R-ONT features two GigE ports, the M-ONT supports up to 24 VDSL/copper connections, and the B-ONT supports legacy voice/data services, GigE connectivity, and mobile backhaul for multiple technologies (2G, 3G, and WiMAX). Alcatel-Lucents 7352 ISAM fiber-to-the-building (FTTB) ONT the M-ONT referenced above, first launched in Q1 2008 is a Full Service Access Network (FSAN) standards-compliant GPON platform with VDSL2 interfaces. The 7352 platform incorporates Alcatel-Lucents Virtual ONT concept, where each VDSL2 copper user has the same QoS as FTTH/GPON users and is effectively treated as a fiber user (via GPONs T-CONTs [traffic container] mechanism).

Metrics
Metrics
PON Interface Support PON Ports per Chassis PON Price per Port PON Chipset Active Ethernet Support Network Interfaces Transport Protocol BPON, GPON

18-slot ANSI chassis: 2,304 (1:32 split). 16-slot ETSI chassis: 2,048 (1:32 split), with 4-port OLT line card from Release 4.4 (June 2007). Not Disclosed Not Disclosed Yes

N x GigE, 10 GigE Ethernet/IP, ATM, TDM

Throughput per Slot

10 Gbps

500 Gbps/chassis via 2 x 250 Gbps NT modules Switching/Throughput Capacity Chassis Dimensions ETSI: 750 mm H x 530 mm W x 285 mm D for the Extreme Density (XD) splitterless shelf. ANSI: 19'' (483 mm) H x 21'' (533 mm) W x 12'' (305 mm) D. Packet OLT (P-OLT) CO chassis with OLTs, ONUs and ONTs in the field Yes Yes More than 100 FTTP customers and more than 80 GPON customers as of Q4 2009, including: France Telecom, Verizon, Hanaro Telecom, Neuf Cegetel, Hong Kong Broadband, Jnkping Energi (Sweden), Portugal Telecom, AT&T, EnergiMidt, and OONO (Netherlands). ANSI, ETSI, NEBS, GR-487

Form Factor Line Powered RF Overlay Customers

Standards Compliance

General Q4 2004 (BPON), Q3 2006 (GPON). Release 4.4 Availability/FCSannounced June 2007, Release 4.6 announced September 2008
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