Calix, a strong player in the growing wireline access (GPON/DSL/IPTV pipes) segment has a singular focus on Tier-2/Tier-3 markets, which in the near-term bodes quite well as the Tier-2/3 segment is in line to receive most of the funds made available through the federal government’s Broadband Stimulus Program to build out the nation’s broadband network, part of the multi-billion-dollar American Recovery & Reinvestment Act’s (ARRP). Tier-1 companies largely passed on Broadband Stimulus.

Calix focuses on wireline access solutions of all types: DSL, GPON and ActiveEthernet. The company’s systems allow service providers to go beyond mere connectivity and reach for the brass ring of extended communications services and revenues that is driving the transformation from legacy circuit to packet; from narrowband to broadband; and from copper to fiber networks. 

Wireline is the true grail. Industry headlines may all be about next-generation wireless but wireline access deployment is the key to the reliable, cost-effective, very-high-speed pipes that are the foundation for Telcos’ entry to the IPTV space.

Calix provides the entire solution ecosystem for the wireline systems. Though it started as a DSL/next-gen voice company called Broadband Loop Carrier, Calix added GPON capabilities through the acquisition of Optical Solutions Inc., and carried out a technology refresh to evolve its product portfolio from ATM to IP/Ethernet. There’s a lot to like: Calix enjoys a strong market position and is the market leader in the Tier-2 segment with good customer traction. The company has a strong, comprehensive product portfolio that is well positioned to address all wireline access market needs. As noted they are a beneficiary of Stimulus funds over the next 12-18 months and Calix is aggressively addressing growth markets such as IPTV and GPON. 

But Calix also has significant challenges. The company has not succeeded in expanding into Tier-1 or international accounts where strong, well-established players maintain deep, long-standing relationships with their customers. As a result, its upside potential is limited because once ARRP infrastructure funds to Tier-2/3 carriers are deployed, Calix has little opportunity to grow at a rate higher than the organic growth of the Tier-2/3 segment in the U.S. Add to that concern over the long-term competitiveness and operational viability of many Tier 2 & 3 carriers, Stimulus funds notwithstanding, and the wireline access market is fiercely competitive with margins under 30% and relatively high R&D costs.

Overall, this is a growth market characterized by a few technology shifts. Verizon’s bold FTTP initiative has spurred a deep-fiber build out by many other carriers, enabled to a much greater degree by the ARRA Broadband Stimulus program.  Calix stands to gain significantly from this build out as it has focused on Tier-2 and Independent Operating Companies (IOCs)/Rurals, again, those that are in line to receive the bulk of the funds.

The next-gen wireline access market is segmented by types of customers, and different players have strengths in different segments. Also, with almost no international presence, Calix is viable only in North America. Still, Calix’s focus on the Tier-2/Tier-3 market of North American wireline carriers brings a long customer list to bear that includes CenturyLink, Windstream, TDS Telecom and many other smaller companies.

Looking at the competitive landscape, the Tier One customers (AT&T, Verizon, Qwest) are largely the domain of Alcatel-Lucent, Motorola, Adtran and Ericsson. The Tier-2 customers (CenturyLink, Windstream, Frontier etc.) are serviced by Calix and Adtran and Tier-3 customers (IOCs/ Rurals, etc) see Calix, Enablence and Occam.

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