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Sci-Atlanta: Cisco's IPTV Lifeline?

's (Nasdaq: CSCO) $7 billion cash purchase of Scientific-Atlanta Inc. (NYSE: SFA) gets Cisco a better presence in the cable space and the digital home, but it's got implications for Cisco's router business -- because the deal could also be crucial for Cisco's future in IPTV.

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

tmc1 12/5/2012 | 2:53:30 AM
re: Sci-Atlanta: Cisco's IPTV Lifeline? Cisco does not have a middleware solution or partner. They do not have any access solutions. They do not have a policy/subscriber solution. They have few/no major wins in the IPTV space. They have no integration experience and have been copying/following Alcatel's strategy. But this deal makes them a player in IPTV???

Juniper is non-existent here, shows absolutely no vision and doesn't seem to care. At least Cisco knows where they stand and are trying to do something.

There is a lot of fear and a little desperation behind this move for GOOD reason.
Honestly 12/5/2012 | 2:53:30 AM
re: Sci-Atlanta: Cisco's IPTV Lifeline? What do you think the SBC's,Verizons and all other carriers think of Cisco's deal.? I beert they think Juniper and Motorola and Sony

The set top market is going through dynamic change which could dis enfranchise this deal.

Motorola is just 1, how about Sony, Phillips, Samsung and every other commoditiy set top play with a HD and SW in it?, can you say Microsoft.

SA's margins will erode Cisco's.

Does Chambers have an opporating system.?

Why do you need a systerms apraoch. GEE If the 10 ft problem gets solved and it will 390 million MS desktops will connect to the TV.

How far behind ALA and MS is Cisco.?

I have Direct TV, do I care. Just let me use my bb pipe in my homew and buy what I want.

Cisco began the week as a box company not a growth company and they ended the week the same. Game over, They are no IBM.
laserboy 12/5/2012 | 2:53:30 AM
re: Sci-Atlanta: Cisco's IPTV Lifeline? Honestly, what are you smoking? Your last post made absolutely no sense... bits and pieces of rhetoric.
got_light 12/5/2012 | 2:53:24 AM
re: Sci-Atlanta: Cisco's IPTV Lifeline? As someone lese had poited out, CSCO needs SA for access. even with SA acquisitons, it will be just another "Also ran" rather than a leader. Will be interesting to see what ALA and others will do..

Got light?
zher 12/5/2012 | 2:53:24 AM
re: Sci-Atlanta: Cisco's IPTV Lifeline? Alcatel has been doing really well in IPTV and Metro Ethernet areas.

It's time for Cisco to fight back?
zher 12/5/2012 | 2:53:24 AM
re: Sci-Atlanta: Cisco's IPTV Lifeline? However, along with the market growth, Cisco becomes the #1 or #2 in that area.

The strategy of the purchases done by Ciso seemed like Cisco always buys the startup companies, this aquisition is really amazing! This lets me think of the deal of Juniper purchasing Netscreen at 4.x B years ago, which brought Juniper to the enterprise and security market successfully.

Let's wait and see the market response, I guess a lot of customers might have been waiting for this moment for long time for them to deploy IPTV?
ozip 12/5/2012 | 2:53:22 AM
re: Sci-Atlanta: Cisco's IPTV Lifeline? Cisco usually makes multiple acquistions in a market. They purchased a small settop/CE company early in the year and I would expect that they will continue to by more "video" assets. Although the hype is around IPTV, cable is probably what will pay for the aquistion, and IPTV is the upside, however it will require signficant re-tooling of the SA product portfolio.

Dont any of you bell head's think this could be a deal to improve their market position in cable?
optiplayer 12/5/2012 | 2:53:22 AM
re: Sci-Atlanta: Cisco's IPTV Lifeline? TMC writes:

"They (CSCO) do not have any access solutions."

This brings up an interesting question - who does Cisco buy next?

Access is a glaring hole in Cisco's lineup but Cisco can't buy the #1 player (Alcatel) and #2 (Tellabs) comes with too much baggage. Will Cisco buy Calix? With Calix's acquisition of OSI (how do they plan to fund that anyway?), they now have a comprehensive product line-up and a long list of independent customers (including Sprint).

Carl Russo is even there... Cerent redux?

ruready 12/5/2012 | 2:53:21 AM
re: Sci-Atlanta: Cisco's IPTV Lifeline? Being #1 in technology is not directly related to being #1 or #2 in marketshare, sales and profits. While it helps to have the best technology, its not the determining factor. Look at Cisco's core market of Ethernet switching. It 'owns' the channel and thus captures the lions share of the market.
ruready 12/5/2012 | 2:53:21 AM
re: Sci-Atlanta: Cisco's IPTV Lifeline? The answer is VERY. Motorola supplies HFC, CMTS, set top boxes, etc..... via its acquisition of General Instruments some years ago. GI was the leader at that point. It was Motorola that saw the need to participate in video before Cisco. The ability for Motorola to offer a joint solution with Juniper is important for both Motorola and Juniper - and it will be increasingly important.
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