Tellabs reported a large restructuring loss and plans to de-emphasize its access business to focus on more profitable sectors. Access is a problematic space for equipment vendors because the carriers are putting enormous pricing pressure on access technology since they are not able to profit adequately from their broadband Internet investments.
We believe that this is one of the early signs that monetization issues for operators will eventually hurt equipment spending, and we heard this week for the first time that a Tier One may cut its spending slightly for 2009. The current plan cited by the provider was to continue access build-outs but try to conserve in metro and core through more aggressive negotiations with vendors and “better technology choices”.
Tellabs also indicated that it did not expect to see a 4Q budget flush this year, which may be an indicator other equipment vendors will reduce 4Q guidance.