Cisco Lands SBC
Cisco's announcement confirmed what many analysts had already believed (see Cisco: We're in RBOC 'Lovefests'). As a result, it didn’t seem to have much impact on the company’s stock price, which sank $0.49 (3.37%) to $14.03. Details regarding the size and duration of the contract were not given.
Even though there has been whispering of the Cisco/SBC deal for many months, it's still a significant contract win, in light of the fact that Cisco is trying to work deeper into regional Bell operating company (RBOC) territory.
RBOCs, the only telecom carriers still spending meaningfully, are seen as the sugar daddies of the industry for the next few years. And because they've been slow to move into data services and IP networks in general, there's still room for growth. Some of them have already been announcing their strategies for expansion, which all seem to include elements of IP routing. Verizon Communications Inc. (NYSE: VZ) announced its strategy early last month (see Verizon Does Enterprise Data); SBC announced its strategy last week.
The other important aspect of the SBC announcement is that Cisco will be the exclusive provider of core IP routing gear, according to a company spokesperson. Juniper Networks Inc. (Nasdaq: JNPR), Cisco’s routing rival, just announced a new incumbent carrier strategy yesterday (see Juniper Targets Carrier Services). Analysts have speculated for months that most of these contracts would be dual-sourced. That would be good news for both Cisco and Juniper, the two dominant IP routing vendors. But this exclusive contract indicates that Juniper could have a tougher time winning deals.
With Cisco’s announcement today, each company has one announced RBOC win under its belt. Juniper announced BellSouth Corp. (NYSE: BLS) as a customer last quarter (see Juniper's Good News Fails to Impress).
Verizon, the largest regional Bell operator in the U.S., is likely next on the hit-list for either company. Juniper is favored as the potential provider for edge routers in the Verizon network (see Juniper Still Working Verizon Deal), but Cisco is also seen getting a piece of this action (see Verizon Talk Stokes Stocks).
As for the immediate impact of the SBC contract, some analysts are skeptical that it will amount to much.
“We believe SBC will be using existing network capacity for in-region lines and only be adding new network capacity and new routers on a ‘success based’ basis on lines sold out of their region,” writes Steve Kamman, an analyst with CIBC World Markets, in an investment note this morning. “As such, new router sales growth will likely be gradual as SBC ramps up sales.”
Even so, Cisco’s win signifies a victory for IP routing in general, as it validates that even conservative incumbent carriers are shifting from legacy Frame Relay and ATM technologies to IP and MPLS. In the long run, this could benefit Juniper as well as Cisco over legacy equipment providers like Lucent Technologies Inc. (NYSE: LU) and Nortel Networks Corp. (NYSE/Toronto: NT).
— Marguerite Reardon, Senior Editor, Light Reading