After a successful second quarter with better-than expected revenue (with revenue up 52% year-over-year to $463 million), equipment vendor Tellabs faces several product migration trends: Its access business is moving more toward fiber than copper, its traditional crossconnects face competition from packet-based alternatives and, most immediately, it is trading its old optical network terminals (ONTs) for new ones this quarter.

Revenue from the access products Tellabs gained through its acquisition of Advanced Fibre Communications contributed $144 million to Tellabs’ second-quarter revenue—31% of the vendor’s total revenue and more in one quarter than AFC ever reported as a standalone company. And within Tellabs’ access group, sales of fiber-to-the-premises (FTTP) and fiber-to-the-curb (FTTC) equipment gained more prominence, accounting for 49% of Tellabs’ access revenue, up from the low 40s in the first quarter.

But Tellabs is also currently migrating its biggest customer of FTTP gear, Verizon Communications, from the 610x ONT it inherited from AFC to the 611, which it inherited through its more recent acquisition of Vinci Systems. The 611 is currently being tested for functions including session initiation protocol as well as interoperability with Tellabs’ optical line terminals (OLTs), chief executive officer Krish Prabhu said on Tuesday’s conference call. Prabhu expects to phase the Vinci ONT into Verizon’s network in the third quarter, though he stressed that the customer dictates the timing of that migration. “We have stopped--I won’t say stopped because it’s the customer’s choice, but for the time being, we have completed our build of scheduled 610x [AFC ONTs] and are transitioning to the 611,” Prabhu said. “Going in to the third quarter, we’ll be largely shipping 611s.”

Tellabs hope to eventually achieve better margins with the 611s than the negative margins yielded by the AFC ONTs. Prabhu cautiously said the company might see positive single-digit margins from the 611s as soon as the fourth quarter of this year.

Prabhu also admitted to what he called a “vendor liability” in the first quarter regarding the 610x ONTs, only the most recent technical snag in the supply of Verizon’s FTTP rollout (a year ago, AFC was found in breach of its contract to Verizon when it failed to meet a required milestone). And in the second quarter, a “marginal design issue in a phase lock loop that caused occasional instability” convinced Tellabs to recall some passive optical networking line cards in its OLTs and replace a component there, Prabhu said. But Tellabs is working with the customer on this matter, which he said has no material impact to Tellabs’ business. A Tellabs spokesperson told Telephony today, “The fix is still in progress.”

Tellabs is also facing an imminent migration among wireless carriers from traditional crossconnects to packet-based architectures that could threaten the vendor’s very successful bread and butter business. Tellabs claimed to have shipped 1.9 million T-1 equivalents in its 5500 crossconnect in the second quarter--slightly more than in the previous two quarters combined. And sales to wireless carriers represented 66% of second-quarter revenue. When asked by an analyst on Tuesday’s earnings call how Tellabs would deal with wireless service providers migrating away from crossconnects toward packet-based next-generation networks, Prabhu said, “That’s going to happen. There’s no doubt about the direction. The real issue is the timetable…That transition…is still a few quarters away.” To address that need, Tellabs will offer its 5500 crossconnect in combination with its 8800 product as a “path of least resistance” for its current customer base. “The 8800 can do a lot of packet grooming,” he said.

The company also plans to introduce a new version of its flagship crossconnect in the third quarter that includes an integrated voice quality enhancement product. Sales of Tellabs’ standalone VQE gear continued their decline in the second quarter.

Tellabs’ headcount was 3700 at the end of the second quarter, the result of its adding 1,000 employees in the past year in addition to the 1,000 employees it inherited from AFC. Prabhu said the workforce would probably stay at its current size or shrink slightly “depending on what kind [research and development] programs we have to do.”