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Posted at 7:35 AM PT, Jun 10, 1998
The impending merger of Tellabs and Ciena marks a growing emphasis on optical networking and the pervasiveness of capacity-boosting dense wavelength division multiplexing (DWDM) technology, according to industry observers.

The merger -- valued at about $7.1 billion in stock - will allow Tellabs' Synchronous Optical Network (SONet)/SDH-managed transport technology to be combined with Ciena's DWDM knowledge. Using DWDM, fiber-optic capacity can be exponentially increased.

"Whatever x is now can go 20 to 40 times x [using DWDM]," said John Nitzke, an analyst at Forrester Research, in Cambridge, Mass. "And it's going to take a while for the market to absorb that."

According to Denny Bilter, director of marketing at Ciena, the merger is a complementary fit in that Ciena creates more bandwidth with its DWDM solutions, while Tellabs knows how to manage that bandwidth.

"Tellabs has been working with SONet and networks for a long time; so working with us -- that's a powerful combination," Bilter said.

Bilter added that the next phase of optical networking is IP directly over DWDM, enabling greater network efficiencies -- because traffic does not have to travel through multiple network layers -- and faster service roll-outs. Ciena already has solutions based on this model, including MultiWave Sentry 1600 and MultiWave Sentry 4000.

The merger is expected to be completed by the third quarter of 1998, after which Ciena will become a subsidiary of Tellabs.

Analysts were positive about the merger and agreed it works well for both parties.

"This deal allows Tellabs to move beyond their successful but near-term cross-connect offering into the sexy DWDM market," said David Cooperstein, an analyst at Forrester. "The price tag was very steep, but the move was a necessary one."

"From Tellabs' point of view, this signals an important new strategy as traditional lines of business are threatened by new telco infrastructures," said Christine Heckart, an analyst at TeleChoice, in Verona, N.J. "Also, the timing is right because Lucent and other big names are already in the DWDM game. It also buys Ciena a bunch of cash and buys them that inroad to relationships through Tellabs installed base."

Craig Johnson, an independent analyst in Portland, Ore., concurred and pointed out that the merger moves Tellabs from being a "second tier" player to a first, and "Ciena moves from being a one-trick pony to a solution set."

Another analyst noted that Ciena represents the significant gain behind the combined company.

"Ciena is the story and was going to change the world by themselves anyway," Forrester Research's Nitzke said. "This confirms that we can expect to see a flood of capacity unleashed on the local loop soon."

Tellabs Inc., in Lisle Ill., is at http://www.tellabs.com. Ciena Corp., in Linthicum, Md., is at http://www.ciena.com.

Laura Kujubu is a reporter for InfoWorld.