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Spring Tide Sells OutSpring Tide Sells Out

IP service provisioning vendor takes the money and runs -- all the way to Lucent

July 26, 2000

3 Min Read
Spring Tide Sells Out

The $1.3 billion acquisition of Spring Tide Networks Inc. by Lucent Technologies Inc. (NYSE: LU) raises the question: Why is Spring Tide rushing for shelter in Lucent's skirts?

The money can't be the only reason. For one thing, Lucent's recent earnings shortfall and dropping stock price have weakened its image as a deep-pocketed parent (see Lucent Technologies Inc. (NYSE: LU)). For another, Spring Tide has money of its own. In addition to its funding, it has a hefty chunk of change coming from winning, with Lucent, a $250 million contract with AT&T Wireless earlier this month. AT&T plans on installing 180 of Spring Tide's IP Service Switch platforms (which are priced anywhere from $80,000 to $700,000 apiece, according to Spring Tide), alongside Lucent AccessPoint routers in 180 cities nationwide over the next two years.

So why the rush to get bought? Spring Tide CEO Allan Wallack told today's Wall Street Journal he needs powerful help to compete with Cisco Systems Inc. (Nasdaq: CSCO) and Nortel Networks Corp. (NYSE/TSE: NT).

Sources say that's a legitimate concern. According to Curtis Price, analyst with Stratecast Partners, a research and consulting firm, IP provisioning products like Spring Tide's aren't show-and-go propositions. "It's a new concept for carriers," he says, which requires lots of extra selling. On top of that, he says carriers require ongoing service and support to make best use of the platform's ability to assign IP voice and data flows to specific subscribers. Considered in this light, Lucent has the advantage of plenty of sales channels and professional services, despite its other problems.

But there may be other reasons Spring Tide's seeking an easier path. According to Spring Tide's VP of marketing, Bob Sullebarger, the company decided on the Lucent course when it considered what it would take to go public based on current revenue projections.

In fact, Spring Tide fell behind its chief competitor, Cosine Communications Inc. in the race to go public when Cosine filed for an IPO in June. And even though Cosine hasn't yet offered its shares to the public, its six customers, including Qwest Communications International Inc. (NYSE: Q) are banking on its future wealth (see Cosine Spreads the Wealth).

Meanwhile, Spring Tide has only announced three customers so far: AT&T Wireless and two CLECs, Ionex Telecommunications and Broadslate Networks.

Still, the market is hardly sewn up. Cosine faces its own challenges: Its platform, the IPSX 9000, adds an application server on top of IP switching functions. And it remains to be seen whether that approach will be a help or a hindrance in terms of scalability and efficiency in carrier networks. Cosine itself says carriers are excited to see one platform that can save them the cost of extra hardware and software. But Spring Tide claims carriers like the flexibility of keeping switching separate from application server farms.

Meantime, other competitors also are facing pressures in this growing market. Nortel, for instance, has faced some scalability questions (see Shasta La Vista ). And, according to Curtis Price, Nortel and another IP VPN competitor, Redback Networks Inc. (Nasdaq: RBAK), both must take their hardware-based solutions to the next level, providing carriers with help with applications and services, in order to succeed.

-- by Mary Jander, senior editor, Light Reading http://www.lightreading.com

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