A big Alcatel-Lucent ( ALU) win means Starent's ( STAR) days as a single-source supplier to Verizon's ( VZ) wireless-Web networking upgrades are numbered. Alcatel-Lucent named Verizon Wireless as a customer for its packet core technology as the No. 1 telco plans its 4G network construction strategy, according to an announcement Wednesday at the CTIA wireless show in Las Vegas. "Now it appears clear that Starent's sole-sourced position at Verizon, where it derives close to 80% of its revenue, post the Alltel acquisition, does not survive into the next generation of technology," JPMorgan analyst Ehud Gelblum writes in a research note Wednesday. Starent has enjoyed its dominance as a supplier of hardware and software to help telcos better manage resources and deliver media and advanced services to smartphones. Stated in English, they help make the Internet happen on smartphones. The Tewksbury, Mass.-based company has two telco customers in the U.S., Sprint ( S) and Verizon, which make up 90% of the company's total revenue. With nearly a lock on the market, Starent managed to sustain plump 78% gross margins last year. As TheStreet first reported last week, the lucrative niche was inviting competition, presumably from larger players including Cisco ( CSCO), Nokia ( NOK), Siemens ( SI), Ericsson ( ERIC) and, it seems, Alcatel-Lucent. Gelblum estimates that Starent's current 3G gear sales will not be affected, but he says Starent will face a stiff challenge in the upcoming 4G, long term evolution (LTE ) build-up. Perhaps of more concern for investors are the dashed hopes of a buyout. Starent's stock had more than doubled since November largely because of anticipation that some larger player would acquire the company to gain a piece of the 4G spending.
"The biggest near-term negative impact for Starent could be a reduced takeover potential as Alcatel-Lucent," Gelblum writes, has now joined Ericsson and Nokia Siemens Networks in having its own internally developed 4G packet core solution."