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Tellabs loses entrepreneurial exec

Edward Kennedy, the Tellabs North America head who had been pegged as a possible successor to departing CEO Michael Birck, has stepped down from the old-guard telecom company.

Telecommunications gear maker Tellabs announced on Wednesday that one of the top contenders for the soon-to-be vacant CEO position has taken himself out of the running.

Edward Kennedy, 49, president of Tellabs North America, resigned from the company effective Jan. 30.

Kennedy had a meteoric rise within the ranks of Tellabs after he joined the company in 2002, when it acquired Ocular Networks, a company he founded. Within months of the acquisition, Kennedy was promoted to senior vice president of metro networking. From there, his responsibilities grew. In March 2002, he was promoted once again to president for North American operations.

After Tellabs Chairman and CEO Michael Birck announced his plans to retire in April 2004, Kennedy, who has held leadership positions in large companies such as Alcatel and Newbridge Networks, was pegged as one of three possible successors.

Kennedy cited "personal reasons" for his abrupt departure, in a statement released late on Wednesday. "After long and careful consideration, it's best for my family that we remain in the Washington, D.C., area," he said.

Birck is expected to resume direct leadership of Tellabs' North American operations on Jan. 19.

Tellabs, an old-guard telecommunications company, is one of the largest providers of digital cross connects, which are products that aggregate traffic from telephone carriers' access networks. Its gear is used in most telephone networks in the United States and other countries worldwide.

For the past several years, the company has attempted to break into new markets, mostly through acquisitions. But many times, its purchase plans have produced little, if any, advantage.

In 1998, Tellabs announced it was going to acquire Ciena, a maker of optical networking gear, in a deal valued at $7.1 billion. The deal fell through at the eleventh hour, and the two companies never merged. By August 2000, Ciena's stock was trading at an adjusted price of $110.84 per share--up considerably from the price of $14.06 it averaged in August 1998, two months after the merger announcement. While Ciena has had some rough times in recent years, it still is considered a leading optical networking player.

In 1999, Tellabs tried entering the high-end Internet router market by acquiring a start-up called Netcore Systems. Within a year, the IP router project had been cancelled.

Then the company acquired Ocular Networks, a start-up that had built a product to help carriers convert their older circuit-switched networks to ones based on newer packet technology. The Ocular products have not been a huge success, but many in the industry believe it is still early.

Finally, in 2003, Tellabs acquired Vivace Networks, a Silicon Valley start-up that makes multiservice label switches, which are used in carrier networks to shunt traffic across the Internet.

Kennedy's quick rise within Tellabs signaled to outsiders that the old-school telecommunications giant was ready for change. Kennedy, who was viewed more as an entrepreneur, put many people from his Ocular team in leadership positions within Tellabs. Tellabs kept on the Ocular facility in Reston, Va., along with many of the old Ocular engineers. But according to some analysts, the transition has been troubled.

"Our contacts suggest that his (Kennedy's) transition since the acquisition of his company has not been going smoothly," said Simon Leopold, an analyst with Merrill Lynch, in a note he published on Thursday. "Sales of the acquired products have been disappointing to date."

Kennedy, who lives in Northern Virginia, did not relocate to Tellabs' Naperville, Ill.-based headquarters after he was put in charge of the company's North American operations.

Leopold said Kennedy's departure is a negative sign for Tellabs, and he expects more management changes. As for the company's new CEO, Leopold believes the company will look for an outside candidate.