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Ciena wins $200 million contract with telecom provider

Competitive local phone company McLeodUSA agrees to buy optical switching hardware from the maker of fiber-optic equipment for use in its new nationwide network.

Competitive local phone company McLeodUSA agreed Wednesday to buy more than $200 million in optical switching hardware from Ciena for use in its new nationwide network.

Under terms of the agreement, McLeodUSA will install more than 50 of Ciena's CoreDirector optical switches by the end of the year.

The deal is significant because new customer announcements are scarce these days for many optical and networking hardware manufacturers. A shortage of investment capital has forced many carriers to reduce their spending on new gear. In turn, many equipment makers, particularly smaller upstarts, have struggled as their sales slowed. Some analysts, however, believe carriers are apt to continue spending on optical gear because demand for bandwidth continues to rise.

"Ciena is clearly dominating in the optics space with its CoreDirector product," said Seth Spalding, a communications equipment analyst at Epoch Partners, an investment bank. "They're maintaining their revenue momentum even despite the (capital expenditure) slowdown."

In an effort to expand its business, McLeodUSA is building a 30,000-mile fiber-optic network aimed at carrying data traffic for other carriers, Internet service providers and Web hosting firms and major business customers. The company primarily provides local voice service in the Midwest and Rocky Mountain regions.

Certain portions of the intercity and intracity network will be operational this year.

Ciena makes a line of optical switching equipment, the MultiWave CoreDirector, for the core of fiber-optic networks. The company's optical gear allows carriers to switch their traffic by converting the optical signal into an electrical impulse to route it, then reconverting it as an optical signal before sending it on. The technology differs from that used by competitors like Corvis that offer all-optical switching and claim the method reduces slowdowns on a network.

Ciena will report its first-quarter financial results next week.