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December 17, 2002
The wires were abuzz today with positive spins on a new deal between Cisco Systems Inc. (Nasdaq: CSCO) and SBC Communications Inc. (NYSE: SBC). But how big a deal is it -- and what's it really mean? (See Cisco, SBC Ink Sales Pact.)
Neither Cisco nor SBC has put a value on the agreement, which follows news earlier this month that Cisco has won a bid to help SBC complete its IP backbone rollout (see Cisco Lands SBC). The new contract has a three-and-a-half-year duration and calls for Cisco to become the "preferred" (read: first dibs, but non-exclusive) provider of a range of equipment designed for a new brand of SBC business services.
But focusing on Cisco may not be the key to understanding what this announcement's all about. It may be just as important to look at what both Cisco and SBC want to do with this marketing pact.
SBC, for instance, clearly wants help in its foray into managed enterprise services, which will enable it to go after the lucrative market in large business accounts. SBC, despite its powerful position as a relatively stable U.S. incumbent, could use the endorsement and assistance of Cisco in achieving that.
Cisco's help also won't hinder SBC's momentum in getting the new services approved nationwide. In a media fact sheet accompanying today's announcement, SBC says the services based on its IP data backbone are available now in Texas, Missouri, Oklahoma, Kansas, and Arkansas, with Connecticut to be added "later this year." National availability is set for mid 2003 -- contingent on regulatory approvals for SBC to extend services outside its "traditional service region."
Today's announcement stands as a reminder of the ongoing regulatory battle being waged in the U.S., as SBC and other RBOCs face ongoing resistance in getting legal go-aheads for national service rollouts (see CLECs Attack SBC).
Cisco, meanwhile, has earmarked the telco space and voice services as a target for future revenues (see Cisco Shouts Out for Voice). What better way to go than through an existing supply relationship with a leading RBOC?
For both SBC and Cisco, the goal outlined in today's announcement is far from a done deal. SBC does yet not have the necessary underlying infrastructure on a grand scale, and Cisco hasn't yet achieved the kind of telephony success the charter calls for.
"Only time will tell, but there are two things I take away from this announcement," writes Peter Reed, an independent telecom consultant, in an email today. "First, it is a non-exclusive agreement. And second, the VOIP component is rather vague." It's not clear that Cisco will be able to deliver some of the more sophisticated voice elements of the new services.
Perhaps the best indicator of the overall softness of today's news is the reaction of vendors that already supply telecom kit to SBC. Nortel Networks Corp. (NYSE/Toronto: NT), seems unfazed: "We see this as CPE-based managed services targeted at Cisco's customers," writes a company spokesperson via email. "It should not be confused with the rich revenues SBC enjoys from hosted services, enabled by Nortel Networks. In addition, Nortel Networks also offers CPE-based managed services with SBC and our many other partners."
Juniper Networks Inc. (Nasdaq: JNPR) isn't letting the news rattle it, either. "We believe this is good news for the industry," says a spokesperson. "It shows more carriers moving to IP and MPLS. We don't view it as real news, since everyone already knows SBC's been working with Cisco. It's also nonexclusive, so we think there are still opportunities for us."
The news also isn't likely to affect supply from Lucent Technologies Inc. (NYSE: LU), which was only announced last week (see Lucent's SBC Win: Confusing News).
As this went to press, Cisco shares were trading at $13.66, down $0.04 (.29%). Shares of SBC were trading at $27.55, up $0.42 (1.55%). Ultimately, though the news may not have a big impact for investors, it does send a strong signal about the importance of data services to the RBOCs.
— Mary Jander, Senior Editor, Light Reading
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