Cisco Gets the Call for AT&T's Core

Avici Systems Inc. (Nasdaq: AVCI; Frankfurt: BVC7) is out of the core router business and AT&T Inc. (NYSE: T) has picked its vendor to replace Avici's routers, which make up the backbone for much of AT&T's network infrastructure. (See Avici Abandons Routing, Targets PBT.) Sources say AT&T's choice is Cisco Systems Inc. (Nasdaq: CSCO) and its CRS-1 router.

Paul Bowen, president of Bowen Advisors , a telecom M&A strategy firm, says AT&T was looking to switch to the CRS-1 partly when the old AT&T was acquired by SBC Communications. Cisco was SBC's router of choice back then and most of SBC's incumbent suppliers have carried over to its acquisitions.

An AT&T spokesman would only confirm that "in 2006 AT&T chose to use the Cisco CRS-1 platform for its OC-768 network upgrade. We will continue to use multiple vendors as we build network capabilities moving forward," the spokesman says.

Avici is leaving the core router market to focus its attention on its new Soapstone product. For now, Soapstone remains a subsidiary of Avici but the company will eventually be re-branding itself as Soapstone with a new stock ticker symbol.

Bowen says Avici, a former client, cut down its customer base, because it was losing money on maintaining its customer networks. At the time, Avici had seven core router customers and had just lost $25 million on revenues of $36 million. Avici eliminated the other six customers in February 2006 and later earned $23 million on revenues of $83 million, he says.

"We had thoroughly reviewed our business and decided to execute a strategy to get the company to positive cash flow. This involved focusing only on opportunities that were generating majority of revenue, primarily AT&T," says Avici VP of Marketing Esmerelda Swartz.

But Avici's grip on AT&T wouldn't last with Cisco and Juniper Networks Inc. (Nasdaq: JNPR) both jockeying for position. By the year's end, AT&T will be entirely a Cisco customer. Bowen says SBC's takeover sped up a process that was supposed to happen sometime between 2008 and 2010.

"As good of a product that Avici had, you can't walk into Cisco or Juniper's office and say that you make a better router than them," says Bowen.

Cisco hasn't responded to requests for comment.

— Raymond McConville, Reporter, Light Reading