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Optical/IP

Cisco and SBC: What's the Big Deal?

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
skeptic 12/4/2012 | 9:10:01 PM
re: Cisco and SBC: What's the Big Deal? 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
--------------------------

What happened earlier this month was that SBC
made an order with cisco on an existing contract.
I'm aware of no bidding process that they "won".

tmc1 12/4/2012 | 9:09:58 PM
re: Cisco and SBC: What's the Big Deal? cisco is doing what it can to sell more boxes to both carriers and enterprise. they bring customers to sbc and sbc sells and uses cisco.

what happens when they have an enterprise customer in a market served by both sprint and sbc? who do they push the customer to use? seems like these deals are good for cisco but not the carriers long term.
Seven 12/4/2012 | 9:09:50 PM
re: Cisco and SBC: What's the Big Deal? We believe ya, you know the inside scoop? Right? Sure...It's a first step into the RBOC's market for Cisco. RBOC's are starting to realize the path to the pot of gold is through Cisco, wheather it be innovation or existing enterprise customers. Let's face it, Juniper is a midgit brother of Cisco. Everyone else is in the verge of cutting R&D, while Cisco ups the anty no one can handle. Carrier Class...is where Cisco is going...Are you ready?
skeptic 12/4/2012 | 9:09:48 PM
re: Cisco and SBC: What's the Big Deal? Carrier Class...is where Cisco is going...Are you ready?
------------
I think its the other way around. Carrier class
is being reduced to whatever cisco delivers.

And most of cisco's recent successes have little
to do with R&D. Cisco's ability to influence
other companies at the executive level seems
to have more to do with their success than R&D,
products or customer service.

willywilson 12/4/2012 | 9:09:33 PM
re: Cisco and SBC: What's the Big Deal? And most of cisco's recent successes have little
to do with R&D. Cisco's ability to influence
other companies at the executive level seems
to have more to do with their success than R&D,
products or customer service

-------

With respect to Cisco's "success" at some ILECs:

1. There is less than meets the eye. Previously planned orders are being swept into these press releases and re-labeled as "new." The trade press is going along with it.

2. Cisco is not penetrating any new applications within the ILECs. Even if the FCC passes the Broadband NPRM, which would restore ILEC monopoly in spite of the Telecom Act's (and Supreme Court's) clear mandate to the contrary, Cisco won't penetrate local voice. The RBOCs will simply relabel their Class 5s as VoIP for regulatory purposes, and the ignorant media will go along with it.

3. Cisco's incremental sales are a "tip" by the RBOCs for lobbying services rendered through the TechNet group, which is controlled by Cisco, Kleiner Perkins and to a lesser extent Intel. This group has brought what's left of Silicon Valley onto the side of the RBOC monopolies.
BobbyMax 12/4/2012 | 9:09:05 PM
re: Cisco and SBC: What's the Big Deal? First of all, I question the expertise of Cisco in making a large IP backbone network. SBC it self does not have any expertise with IP backbone network. It no longer has the brain of Bell Commuhnications Research ( Telcodia Technologies) to get any help on technology related matters. According to the reports, SBC never issued an RFP to various vendors. This is in violation of internal SBC rules of procurement. SBC also frustrated other vendors from competing.

In setting up any long IP backbone, it requires various performance measurement. SBC has also not made it clear what are the possible usage for the network.

Cisco has not volunteered any information as to the performance measurement items, techniques, and methology. This should be of grave concern at all times.

Cisco will also attempt to unload backbone routers on SBC. If there are interoperability problems between Cisco and routers from other vendors,Cisco would force SBC to procure all its routers from Cisco.

Any business conducted in secrecy with Cisco would only hurt the company and its shareholders. If Cisco convinces SBC to provide VoIP, this will hasten the death of SBC.

SBC cannot make any money if it provides long distance service in some other reasons other than where its workforce is located. With long distance going as low as 5 cents a minute, there is no reason for any RBOC to enter the long distance business.

Law Makers from the US Congress, investment bankers, VCs, and equipment vendors have created a big mesh for RBOCs. The task of unbundling is very expensive and CLECs should bear the entire cost of unbundling.

MPLS is not necessary to provide IP services. It just complicates the network operation. and the Capex and Opex costs on a reoccuring basis.

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