Sci-Atlanta: Cisco's IPTV Lifeline?
Specifically, analysts say it's a way for Cisco to combat competitors such as (NYSE: ALA; Paris: CGEP:PA). As a systems integrator with a broad range of products, Alcatel has emerged this year as an IPTV slugger, announcing a chain of wins for its Triple Play Service Delivery Architecture (TPSDA).
Cisco needed to compete. "What Cisco has done is acknowledge the fact that Alcatel has won a lot of business because of their end-to-end solution. They lost enough of these big contracts and realized they had to do something," says Tim Daubenspeck, an analyst with Pacific Crest Equity Partners Inc.
Cisco's IP NGN mantra helped to better define its IPTV strategy, but overall, Alcatel's "combination of customer wins and marketing on the topic put vendors like Cisco, and others, in a reactionary mode to define their video strategy," writes Heavy Reading analyst Rick Thompson, in an email to Light Reading.
Mike Volpi, senior vice president of Cisco's routing and service provider technology group, alluded to this during a conference call with analysts today. While not mentioning Alcatel, he did say Cisco needed more muscle in video.
"Some of our competitors have been able to sell a more end-to-end integration solution compared to us," he said. "This combination is a clear response to that."
And TV is important. Video is the cornerstone of the so-called "quadruple play" that also includes voice, data, and wireless services. "The bandwidth-dominant application often is the one that determines how networks are built in the long term," Volpi said. "Increasingly the next-generation networks will be built with video in mind first."
Cisco reckons service-provider video to be a $4 billion or $5 billion market right now, growing at 22 percent a year to $9.9 billion in 2009, Volpi said.
Odd man out?
In router circles, these arguments bring up a natural question: If Alcatel and Cisco can now say they have complete IPTV rosters, where does that leave (Nasdaq: JNPR)?
"I don't know what Juniper can do. In terms of IPTV, Juniper is basically a point-product company," Daubenspeck says. "Obviously, it's not participating in any of these big contracts. I don't know how they get out of this."
A Juniper spokeswoman says it's simply a difference of strategies, in that Juniper doesn't see a need to provide every IPTV piece by itself. "We have the competency with the routing platforms, and we are partnering for the other pieces," she says. Examples include this week's announcement of a CMTS partnership with Motorola Inc. (NYSE: MOT) and a Unisys Corp. (NYSE: UIS) alliance annouced at the recent TelcoTV conference. (See Moto, Juniper Target MSOs.)
Daubenspeck doesn't see the Motorola partnership helping on the IPTV front.
"How applicable is Motorola to IPTV? Not very. They're involved in fiber-to-the-prem with the Quantum Bridge acquisition, but Motorola nas not shown itself to be a true IPTV player."
The Cisco/Scientific-Atlanta pairing doesn't spell doom for Juniper though, not even in cable markets. The "silver lining" is that some cable operators want multiple suppliers.
"Some of them were talking about Juniper as a supplier just because they didn't want to put all their eggs in one basket," says Simon Leopold, an analyst with Morgan Keegan & Company Inc. "I went on an unofficial tour of a cable headend once, and I was surprised how much of the floor was Cisco equipment."
And Leopold believes the Motorola partnership could help Juniper combat the newly armed Cisco.
"Certainly, Cisco being a threat to Juniper and Scientific-Atlanta being Motorola's main competitor, this marks the Juniper partnership as being much more important and much more powerful in providing to the cable companies," Leopold says.
Greater than 'x'
This "end-to-end" picture painted by Cisco includes more than set-top boxes. Scientific-Atlanta also provides network transmission equipment -- systems connecting satellite feeds to the hybrid co-ax lines, for example -- and network management. "It's that whole enchilada that cable providers want," Volpi said on the conference call.
"What customers look for is not just a cheap set-top box which has 'x' functionality but for an end-to-end system."
Scientific-America's cable presence is important, too. The company counts 50 million homes passed with its technology, and it's important for Cisco to have that foothold in the present video market, Heavy Reading's Thompson writes:
"Cisco can now watch the overall video market evolve, continue to add a large number of video subscribers over its infrastructure in the cable space, and create a compelling story for the IPTV space given their background in IP routing."
Aside from the technology implications, Scientific-Atlanta also adds to the revenue and growth picture. Cisco CEO John Chambers recently told analysts to expect 10 to 12 percent growth for Cisco in the coming year; the infusion from Scientific-Atlanta could nudge that into the "12 to 16 percent range," Volpi said.
As large as the Scientific-Atlanta deal is, analysts say it doesn't figure to be the end.
"I would look to vendors like Cisco, Alcatel, and others, to next acquire in the VOD [Video on Demand] space. VOD vendors, specifically for IPTV, have a very network-centric view of the video storage and distribution problem," Thompson says.
— Craig Matsumoto, Senior Editor, Light Reading