ADTN

ADTRAN, Inc.

ADTRAN, Inc. designs, manufactures, markets and services network access solutions for communications networks. Our solutions are widely deployed by providers of communications services (serviced by our Carrier Networks Division), and small and mid-sized businesses (SMBs) and enterprises (serviced by our Enterprise Networks Division), and enable voice, data, video and Internet communications across wireline and wireless networks. Many of these solutions are currently in use by every major United States and many global service providers, as well as by many public, private and governmental organizations worldwide.
We were incorporated under the laws of Delaware in November 1985, and commenced operations in January 1986. We are headquartered in Cummings Research Park in Huntsville, Alabama. The mailing address at our headquarters is 901 Explorer Boulevard, Huntsville, Alabama, 35806. The telephone number at that location is (256) 963-8000.
Products and Services

We maintain two operating divisions based on our product and service offerings: the Carrier Networks Division and the Enterprise Networks Division. These divisions serve two distinct markets and support sales globally, operating as two reportable segments. In 2009, sales of Carrier Networks products accounted for 76.7% of total revenue, while sales of Enterprise Networks products accounted for 23.3%. Sales to countries outside of the United States are included in these aggregate divisional figures, but when accounted for separately, comprise 5.7% of total revenue. For more financial information about these divisions and geographic areas, see Note 9 to the Consolidated Financial Statements included in this report.

Our Carrier Networks Division provides products used by service providers to deliver voice, data and video services from their equipment, whether it is located in a central office or remote terminal location, to a customer’s premises. Our Enterprise Networks Division provides products used by enterprise customers to construct voice, data and video networks within the customer’s site or among distributed sites. Our combined product portfolio for both divisions consists of approximately 1,700 high-speed network access and communication devices. In both service provider and enterprise networks, these products are used primarily, but not exclusively, in the “last mile,” or local loop, of a service provider’s network, and in local area networks on a customer’s premises. The last mile is the segment of the network that connects end-user subscribers to a service provider’s closest facility by either copper or fiber. Local area networks include connecting routers, switches, PCs, printers, phones, faxes, and other communications devices within a given building or campus. Our products typically connect two ends of a circuit and serve to transmit, route, and/or switch the data, voice, and/or video traffic traveling across that circuit. The bandwidth requirements of the circuit, along with the type of technology being used, determine the type of equipment needed.

Both of our divisions are positioned with product and service offerings that compete in many segments of the global telecommunications industry and, specifically, in the areas of Ethernet and Internet Protocol (IP) based networks. As networks migrate to IP-based architectures to deliver and utilize higher bandwidth services, ADTRAN® has strengthened its technologies in its primary growth areas: Broadband Access, Optical Access and Internetworking.
For a discussion of risks associated with our products see “Risk Factors — We must continue to update and improve our products and develop new products in order to compete and to keep pace with improvements in telecommunications technology”, and “Risk Factors — If our products do not interoperate with our customers’ networks, installations may be delayed or cancelled, which could harm our business”, in Item 1A of this report.
Network Access Infrastructure for Advanced Services

Networks are continuing to undergo a fundamental shift from voice-centric technologies to data-centric technologies, and converged networks are being implemented to address both voice and data requirements in the business network. When voice was the dominant type of traffic in the network, networks were engineered to carry voice, integrating data into the architecture as necessary. Today, data is becoming the dominant traffic type, and networks are evolving to increase bandwidth and transport data, voice and video in an integrated architecture. As networks migrate toward integrated communications and entertainment services, carriers and businesses alike are transitioning their networks to packet-based technologies, such as Ethernet and IP. We are well positioned to support both existing services and newer advanced services.

We develop, market, and support high-speed network access solutions for use across IP, Asynchronous Transfer Mode (ATM), and Time Division Multiplexed (TDM) architectures in both wireline and wireless network applications. Our solutions are used to deploy new broadband networks and to upgrade slower, established networks using copper, fiber, and wireless technologies both in the United States and abroad.

Our three major product categories are Carrier Systems, Business Networking and Loop Access.
Carrier Systems products are used by communications service providers to provide last mile access in support of data, voice and video services to consumers and enterprises. The Carrier Systems category includes our broadband access products comprised of Total Access® 5000 multi-service access and aggregation platform products, Total Access 1100/1200 Series Fiber-To-The-Node (FTTN) products, and Digital Subscriber Line Access Multiplexer (DSLAM) products. Our broadband access products are used by service providers to deliver high-speed Internet access, Voice over Internet Protocol (VoIP), IP Television (IPTV), and/or Ethernet services from the central office or remote terminal locations to customer premises. The Carrier Systems category also includes our optical access products. These products consist of optical access multiplexers including our family of OPTI products. Optical access products are used to deliver higher bandwidth services, or to aggregate large numbers of low bandwidth services for transportation across fiber optic infrastructure. Total Access 1500 products, 303 concentrator products, M13 multiplexer products, and mobile backhaul products are also included in the Carrier Systems product category.
Business Networking products provide access to telecommunication services, facilitating the delivery of converged services and Unified Communications to the SMB and Enterprise markets. The Business Networking category includes Internetworking products, Optical Network Terminals (ONTs), and Integrated Access Devices (IADs). Internetworking products consist of our Total Access IP Business Gateways and NetVanta product lines. NetVanta products include multi-service routers, managed Ethernet switches, IP Private Branch Exchange (PBX) products, IP phone products, Unified Communications solutions, and Carrier Ethernet Network Terminating Equipment.
Loop Access products are used by carrier and enterprise customers for access to copper-based telecommunications networks. The Loop Access category includes products such as: Digital Data Service (DDS) and Integrated Services Digital Network (Total Reach) products, High bit-rate Digital Subscriber Line (HDSL) products including Total Access 3000 HDSL and Time Division Multiplexed-Symmetrical HDSL (TDM-SHDSL) products, T1/E1/T3, Channel Service Units/Data Service Units, and TRACER fixed wireless products.

In addition, we identify sub-categories of product revenues, which we divide into growth products, representing our primary growth areas, and traditional products. Our growth products consist of Broadband Access and Optical Access products (included in Carrier Systems) and Internetworking products (included in Business Networking) and our traditional products include HDSL products (included in Loop Access) and other products.

Carrier Networks

Carrier services continue to evolve to next generation networks, and carrier service providers are generating additional revenue by connecting greater numbers of customers to their infrastructure by offering broadband digital services. Our Carrier Networks Division supplies the network access products that these service providers require to connect their customers to core transmission and switching networks. Specifically, we deliver fiber and copper-based solutions that enable these types of services. Our customer base includes all of the major United States Incumbent Local Exchange Carriers (ILECs), many independent operating companies, Competitive Local Exchange Carriers (CLECs), Utilities, Municipalities, Cable MSOs, major international carriers and wireless service providers. We have focused on opportunities in North America, with increasing emphasis on expanding into the Asia-Pacific region, Caribbean, Latin America, Europe, the Middle East and Africa.

Services enabled using our systems include traditional voice services, VoIP, IPTV, RF Video, high-speed Internet access and data services based upon Ethernet, frame relay, TDM, and ATM networks, connecting the network with user components such as switches, routers, gateways, IADs, PBX, and telephone key systems. ADTRAN devices, deployed at the business site, are enabling carriers to provide Ethernet services to SMBs and distributed enterprises. Our solutions provide a complete end-to-end solution for carriers by supporting both new fiber-based infrastructure and also allowing them to reuse their existing copper infrastructure, lowering their overall costs to deploy advanced Ethernet services to SMBs and distributed enterprises.

Service Provider Networks

Telecommunications networks are transitioning from traditional TDM and circuit-switched technology to IP and Ethernet-based packet networks that offer services such as high-speed Internet access, VoIP, and IPTV. We design solutions that allow service providers to leverage existing network assets, by providing a migration path to new broadband technologies and services.

Continued competition from cable and wireless providers is forcing traditional wireline service providers to react with price incentives, service bundling, and network investments and modifications. ADTRAN products enable wireline providers to offer higher Internet access speeds as well as VoIP and IPTV. Our multi-service access and aggregation platforms are used to provide multi-Gigabit Ethernet capability, increasing rates within the access network. Our optical technologies enable subscriber access solutions for Fiber-To-The-Premises and FTTN architectures. To offer higher speed DSL services in support of delivering Internet access and IPTV, carriers are “shortening” copper loop lengths in order to increase bandwidth and gain a competitive advantage. Our multi-service access and aggregation platform and the FTTN series of outside plant DSLAM products are used to shorten copper loop lengths so that wireline providers can deliver higher-speed network services.

Our products marketed under the Total Access® brand fit the decentralized networking model that most carriers are using today both in the United States and abroad. Currently, these products comprise the flagship product line for the Carrier Networks Division and offer service providers a single platform that can accommodate demand for a variety of high-speed Internet, voice, data and video services from businesses and residential customers. These modular, scalable, and geographically distributed products offer advantages such as lower start-up costs, more flexible service deployment, greater network interface options, increased bandwidth, grow-as-you-go modularity, and centralized network management. We provide Total Access products that connect to fiber optic and copper network backbones, making them suitable for installation in many parts of the network and enabling deployment of a wide range of voice and data services around the world. The Total Access® products and other ADTRAN products are accepted by the USDA Rural Utilities Service (RUS) as suitable for use in RUS-financed telecommunications systems. Deployed in central offices, remote terminals, or multi-tenant units, the system encompasses carrier-class solutions for fiber and copper broadband multi-service access, DSL access, Carrier Ethernet access, and narrowband multi-service access.

Advanced IP Services

For wireline service providers, our broadband access products provide the ability to increase bandwidth and improve the quality of services to customers. These products are used in high-density central office applications, along with lower density applications that include remote terminals and outside plant deployments. Also, these products are available in models that are temperature hardened for use in harsh, outside-plant environments and provide support for Ethernet delivery of advanced IP services over fiber or copper as well as legacy TDM and ATM networks.
High-speed Residential Services

Gigabit Passive Optical Network (GPON) technology has been added to the Total Access® platform. Our GPON module provides 2.5 Gbps to each optical line terminal port, enabling the delivery of advanced, very high bandwidth services such as high definition television (HDTV). The multi-service capabilities of the Total Access® 5000 allow for the support of native Ethernet services like GPON from the same platform used to support POTS, DSL, Bonded Copper, TDM, ATM, and legacy copper services. Service providers of all sizes are looking to fiber access technologies, like GPON, for ultra-bandwidth delivery to residential customers as well as to provide high-speed Ethernet and voice services to businesses. The ADTRAN optical network terminals work in conjunction with the Total Access® 5000 to support a wide range of applications for both residential and business applications, ranging from POTS and DS1 to Gigabit Ethernet. The ADTRAN Total Access® 5000 also provides fully integrated voice options, including support for both TDM trunk interfaces and VoIP.

Very-high-data-rate Digital Subscriber Line (VDSL2) has been added to our leading Total Access® DSLAMS. These DSLAMs allow service providers to realize ultra-broadband speeds over their existing copper infrastructure, economically securing the broadband connection to the home and enabling the delivery of advanced communications and entertainment services. Total Access® 1100 Series broadband access products provide an innovative approach to the successful deployment of FTTN architectures. Recognizing the technological and economic barriers of traditional cabinet-based DSL deployments, ADTRAN designed this product series to eliminate the need for expensive cabinet enclosures, heat exchangers and site construction, which account for a large portion of the total cost of deployment. In many cases, Total Access® 1100 Series DSLAMs can deliver FTTN-based services for significantly less than traditional cabinet-based systems. This allows carriers to more economically utilize the capacity of the existing copper network over the last mile.

Metro Ethernet Services

Metro Ethernet is growing with the proliferation of packet-based infrastructure in both enterprise and carrier networks. The implementation of Ethernet throughout the communications network provides benefits in equipment and operational savings. Gigabit speeds are increasingly becoming available throughout the access network, but they are far from being widespread. Ethernet’s increasing presence throughout the network is driving costs down, further increasing availability to business customers. We provide Metro Ethernet Forum (MEF) compliant products that enable the delivery of these services.

As demand grows for mid-rate (2-40 Mbps) Ethernet services worldwide, the service providers have seen a need to deliver these Ethernet services over copper in addition to fiber. To enable this, enhancements in SHDSL technology (eSHDSL) have been developed to increase the rate delivered per copper pair to more than 5 Mbps and to bond pairs together (G.bond) to offer rates not attainable over a single pair. Ethernet over Copper (EoCu) technology uses eSHDSL and G.bond to deliver these mid-rate Ethernet services over several (typically one to eight) “bonded” pairs. ADTRAN has EoCu solutions that enable our carrier customers to deploy high-speed Ethernet services in places where fiber deployments are not currently available and new construction is not cost effective.

ADTRAN has also developed solutions that allow service providers to deliver Ethernet services over their existing TDM (EoTDM) infrastructure. ADTRAN’s dominant position in DS1 delivery technology (HDSL) allows us to have a unique advantage in our ability to integrate Ethernet over Fiber, Copper, and TDM into a comprehensive Ethernet access solution for service providers.

Optical Access

We also offer a set of solutions that provide transport over fiber facilities for mobile backhaul networks. These products are designed to optimize network performance and perform bandwidth management functions. Our OPTI® product family includes a multi-service provisioning platform, the OPTI-6100®, delivering high speed Ethernet (addressing DS1/E1, DS3/E3, OC-3/STM-1, OC-12/STM-4, OC-48, and 10/100/1000Mb) connectivity and transport to cellular sites using a variety of fiber optic ring architectures. Our OPTI-3® fiber multiplexer provides OC-3 capacity in terminal mode and DS3 range extension applications. The OPTI-6100® MX (medium) chassis consolidates discrete optical and multiplexer network elements into one, small chassis that addresses DS1/E1, DS3/E3, STS-1, OC-3/STM-1 bandwidths, and Ethernet services delivery to the subscriber. Our OPTI-6100® LMX (large) chassis provides high density termination options and utilizes many common modules from the other OPTI® chassis. The OPTI-6100® SMX (small) chassis provides a very compact chassis for low-density applications, with a variety of mounting options to meet unique customer requirements. Our solutions provide for optical transport in very compact enclosures for cell site traffic backhaul and feature single fiber operation for maximum facility utilization and integration with the ADTRAN Total Access® family of products and associated multiplexers.

All of these products enable wireless and wireline service providers to more efficiently handle network traffic by consolidating multiple circuits into a single facility, to upgrade their networks to support next-generation services, and to improve backhaul efficiency. These devices provide a migration path from TDM systems to Ethernet/IP networks and also support techniques for ‘bonding’ multiple physical circuits into a single virtual circuit.

Business-class Services

HDSL is a common technique for delivering bandwidth at rates of 1.544 Mbps (known as the DS1 or T1 rate) for infrastructure support, business customer services, and wireless network mobile backhaul services. The T1 interface is universally accepted throughout the United States, and HDSL is the most common method of delivering the T1 interface in nearly every application. ADTRAN HDSL products are manufactured in a variety of configurations for use in every major DS1 deployment platform for voice and data services.
SHDSL products were developed to provide symmetrical solutions for the transport of high-speed business-class services. The International Telecommunications Union (ITU), Alliance for Telecommunications Industry Solutions (ATIS), and the European Telecommunications Standards Institute (ETSI) have established standards for 2-wire and 4-wire SHDSL solutions.

We contributed significantly to ITU, ATIS, and ETSI SHDSL standards. Because of this involvement, we delivered the industry’s first SHDSL customer device. Our SHDSL products, like many of our products, are standards-based, which ensures interoperability with other standards-based products.

Network Management

As networks become more complex, the need for carrier-class management systems becomes apparent to ensure operational efficiencies. We develop and support systems to centralize the configuration, provisioning, and management of our network access products. These systems are used to configure, monitor, and control ADTRAN equipment installed on local loop circuits. The systems ensure communication with the service provider’s central management system to reduce technician dispatches and operating costs. Our Total Access® Element Management System is an all-Java application that provides configuration, performance, network assurance, and provisioning functions for ADTRAN Total Access® products.

Enterprise Networks

Our Enterprise Networks Division encompasses a comprehensive internetworking solutions portfolio that delivers converged services and Unified Communications to the SMB and Enterprise. SMB and geographically dispersed enterprises use these products for their voice and data service requirements. Our carrier customers bundle our solutions into their service offerings for their SMB and enterprise customers. These products are typically installed in equipment rooms and wiring closets, to connect headquarters, branch offices, and telecommuters to the corporate voice and data infrastructure. A small to medium business generally refers to an organization with fewer than 500 employees. These businesses can be a single location or geographically dispersed with many locations, including home offices. These businesses and service providers use our internetworking products to implement a high performance, reliable network for converged services and Unified Communications.

Marketed under the brand names Total Access® and NetVanta®, our solutions are known for their high performance, reliability and high availability making them the preferred solutions for the delivery of converged IP services. The solutions portfolio includes multi-service routers, managed Layer 2/3 switches, IP Business Gateways, FTTx ONTs, Wireless Access Points, IP PBXs, IP phones and Unified Communications solutions. The Enterprise Network solutions portfolio provides the infrastructure required for a SMB or Enterprise to utilize converged IP services and Unified Communications. Further, our solutions enable the SMB and Enterprise end user to migrate their existing infrastructure — thus preserving their investment; or to replace their legacy system with an IP-based solution.

We view the development and continued evolution of our operating system as critical to our success in bringing to market feature rich, highly reliable, high performance solutions. As such, the ADTRAN Operating System (AOS) is common across our internetworking products, optimizing our product development resources and minimizing time to market for new products and features. It also ensures common configuration practices, policies, protection schemes, and management interfaces for our carrier customers providing a Total Cost of Ownership (TCO) advantage.
Our solutions and their roadmaps are closely aligned with our customer’s strategic service offerings. Our solutions enable our customers to offer high performance, feature rich managed and unmanaged converged IP services (data, voice, and unified communications) to the SMB and Enterprise. Our solutions offer a wide range of LAN and WAN connectivity options, ranging from analog to fiber, supporting different geographic locations in their enterprise and wide area networks, as well as their local area networks requiring switching, routing and voice capabilities. Many of the products available from the Enterprise Networks Division reach the SMB and Enterprise end user through their service provider as these products are typically installed by the service provider at the customer premises as part of a bundled service package.