Avaya Inc. (NYSE: AV) and Extreme Networks Inc. (Nasdaq: EXTR) are teaming up to form a multimillion-dollar marketing alliance to sell voice-over-IP gear to enterprises.

The Avaya/Extreme relationship will not have a direct impact on service providers per se. Avaya sells its circuit-based telephony gear and IP telephony products strictly to businesses. But the new alliance is further proof that IP telephony services within the enterprise are in high demand. Carriers are already beginning to wake up to this reality and have recently talked about deploying new IP telephony services (see Carriers Say VOIP & SIP Are Hot).

But carriers will have to act quickly, as more and more large firms are deploying their own IP telephony solutions using gear from companies like Avaya, 3Com Corp. (Nasdaq: COMS), Cisco Systems Inc. (Nasdaq: CSCO), Nortel Networks Corp. (NYSE/Toronto: NT), and Siemens AG (NYSE: SI; Frankfurt: SIE), according to a report published by IDC earlier this year (see IDC Predicts VOIP Battle).

The new arrangement between Extreme and Avaya expands on an existing relationship. But this time, Avaya gets a warrant to buy up to 2.6 million shares of Extreme common stock at $0.01 per share.

As part of the deal, the two companies will spend millions of dollars to develop new technologies and products. Specifically, the companies will work on developing new standards. They'll also work on creating better provisioning tools, says Duncan Potter, vice president of marketing at Extreme. Avaya will also resell Extreme’s IP and Ethernet switches and provide customer support to enterprise customers worldwide.

“This is a big deal for Extreme,” says Erik Suppiger, an analyst with Pacific Growth Equities Inc. "Avaya has 7,000 people in its services organization. That’s a meaningful group of people that will be helping to service Extreme products.”

The move should also help the companies combat VOIP market leader Cisco. Avaya sells its IP telephony gear against Cisco, while Extreme competes in the enterprise and service provider IP switching markets. Extreme, in particular, has lagged behind Cisco in the VOIP market, because it hasn’t offered an end-to-end solution. The beefed-up alliance should help Avaya and Extreme battle Cisco much more effectively, says Suppiger.

“Extreme and its peers have struggled in IP telephony,” he says. “They can’t provide a full solution like Cisco can. The technologies are still evolving to the point where customers really need an end-to-end solution.”

Investors didn't appear to have a hangup about the marketing pact. Extreme Networks was trading up $0.87 (9.70%) to $9.84, and Avaya shares rose $0.23 (1.76%) to $13.29 in late afternoon trading on Tuesday.

— Marguerite Reardon, Senior Editor, Light Reading