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Optical/IP

Cisco Lands SBC

In a significant sign that there is indeed still life in the IP networking market, Cisco Systems Inc. (Nasdaq: CSCO) today announced its first official Baby Bell contract (see Cisco Wins SBC Backbone). SBC Communications Inc. (NYSE: SBC) says it plans to use Cisco’s GSR 12000 core IP routers to expand its high-speed national data network.

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
www.lightreading.com
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lightmaster 12/4/2012 | 9:14:52 PM
re: Cisco Lands SBC It is very unusual for an RBOC to award an exclusive contract. My best guess is that SBC wanted dirt cheap pricing but wasn't willing to commit to volumes to justify it. The compromise was to give low pricing in exchange for an exclusive.
Fiberjake 12/4/2012 | 9:14:51 PM
re: Cisco Lands SBC What does this mean for start-ups like Procket ?

Will this do in a few more start-ups ?

Thanks
opticaltalent 12/4/2012 | 9:14:51 PM
re: Cisco Lands SBC
I think Cisco can totally run away with the game if they execute in the RBOC marketplace place the next 2 yrs., but they HAVE to do the two things below if they are going to be wildly successful.

1. Build a relationship with the customer based on trust and the carrier will have to believe Cisco's goals are their goals (right now every RBOC especially Verizon & SBC have an aversion to the way Cisco does business). Customer relationships are not good to say the least at most of the big carriers...solvable problem with the right people in front of the customer.

2. Have a product portfolio the carriers want to buy. They have the money, R&D, and people do it. This is up to Jayshree Ullal and Ron Martin's groups. GOOD LUCK!!!
skeptic 12/4/2012 | 9:14:51 PM
re: Cisco Lands SBC It is very unusual for an RBOC to award an exclusive contract. My best guess is that SBC wanted dirt cheap pricing but wasn't willing to commit to volumes to justify it. The compromise was to give low pricing in exchange for an exclusive.
---------------

To tell you the truth, I'm not even sure that
a new contract was signed between SBC and cisco.
I talked to someone at SBC today and they told
me that this is a new order on an existing
contract rather than a new contract.

And the person I talked to did not believe that
SBC had an exclusive obligation to buy cisco
except perhaps on one particular existing
network which is already all cisco.

I'm not flatly saying the light reading article
is wrong, but there seems to be a certain amount
of confusion even in SBC about what is going
on.

I also have a certain amount of doubt that SBC
would ever sign as comprehensive a deal with
cisco to exculde competitors as some are
suggesting. If they did, it would be rather
unusual for an RBOC. I mean the vendors will
give them anything they want to land the account
anyway. To get a full exclusive, I would think
that you would have to give them the equipment
for free.
wirespeed1010 12/4/2012 | 9:14:50 PM
re: Cisco Lands SBC ...and what about Redback? I was surprised there was no mention of them in the article. Aren't they supposed to be in the running for the RBOC business as well?
skeptic 12/4/2012 | 9:14:50 PM
re: Cisco Lands SBC What does this mean for start-ups like Procket ?

Will this do in a few more start-ups ?
-------------------
It means nothing. There was no real competitive
situation at SBC. There wasn't even competition
between cisco and juniper for this particular
business.

The competitive situations for the startups
are at other carriers.

None of the startups were counting on SBC. Avici
had delusions of getting into SBC at one time,
but thats about it.

If one of the competitive situations results in
a contract, it may shake things out among the
startups. But it has not happened yet.
bigalf30 12/4/2012 | 9:14:49 PM
re: Cisco Lands SBC Well see if this really happens. Hey does anyone know what web sites show IOC listing by state.
ip-eng 12/4/2012 | 9:14:47 PM
re: Cisco Lands SBC Cisco really knows how to sell its stuff ... Juniper probably builds a better box but Cisco has a strong sales and marketing team.
bluemtn 12/4/2012 | 9:14:45 PM
re: Cisco Lands SBC ...and what about Redback? I was surprised there was no mention of them in the article. Aren't they supposed to be in the running for the RBOC business as well?
________________________

The PR says this is a backbone network. RBACK is all about the edge, connecting to 10K of indivudual users rather than a few nearby routers.

When edge deals are awarded that focus on the consumer and small busines markets RBAK should be there, or they are toast. The enterprise stuff is a beter fit with JNPR or RSTN boxes...RBAKS product conect 50K to 100K custumers. Unisphere's box is more like 8-10K. It's thos big POP that the RBAK stuff goes in...
AAL5 12/4/2012 | 9:14:44 PM
re: Cisco Lands SBC Ip-eng,

If you mean Juniper has G«ˇbetter h/wG«÷ it depends on how you define this term. If you mean hardware that supports features at line rate, support for comprehensive COS and an architecture that doesn't have head of line blocking then its Cisco core/edge router that is 'better'.

If you define 'better' as the first to get to 40G per slot box and the promise in the future of a distributed multi-box switching fabric then Juniper is 'better'.

Juniper is winning the port density and switching fabric capacity battle at the moment with the Gibson, but this is similar to the ATI vs NVidia 'game' in this respect i.e. 9700 beats Geforce for now, NVidia NV30 comes out and stomps ATI, etc.

Which software is G«ˇbetterG«ˇ is much more contentious issue, IOS is feature rich where as Junos was targeted as a Core router OS which it is very good at.

You could argue that IOS is old in the tooth and pre-emptive Junos is better, but on the hand you could it could be viewed that IOS contains mature protocol code that has been tried out in hundreds of customer sites has field trialed 'experience' in regards to uncovering problems and fine tuning its functionality and performance.

Lots of arguments pro-IOS and pro-Junos in this area IG«÷m only touching on this subject.

AAL5
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