Cisco's Charmed by Cable VOIP Growth
Cisco's VOIP equipment business grabbed market share leadership from Nortel Networks Ltd. in the fourth quarter, according to new research from market analysts Dell'Oro Group and Synergy Research Group Inc.
According to the Synergy numbers, released Tuesday, Cisco controlled 17.7 percent of the market in the fourth quarter of 2006. That's up from 8.7 percent a year earlier, and up from 12.4 percent in the third quarter. Nortel's market share slipped from 20.2 percent in the third quarter to 14.4 percent in the fourth quarter, Synergy says.
The Dell'Oro Group's market share numbers also show Cisco leading in market share in the fourth quarter, just edging ahead of Nortel.
Piper Jaffray & Co. analyst Troy Jensen says Cisco's market share gains come from sales of its MGX 8880 gateway to Time Warner Cable and Comcast, the two largest MSOs in North America. Both MSOs are undergoing large VOIP network buildouts, Jensen says, and the two are likely buying VOIP gateways exclusively from Cisco. (See Comcast Revs Up Capex.)
And the MSOs may just be getting going. Comcast has 1.85 million VOIP subscribers now, and expects 3.1 million more gross adds in 2007. Time Warner has 2.6 million VOIP users now, and also expects big gains in 2007. (See Time Warner Perks Up.)
"So clearly they have to buy a lot of media gateway ports to facilitate IP-to-TDM calling," Jensen says.
The general manager of Cisco's Mobility, Signaling, and Control Business Unit, Larry Lang, points out that only 6 percent of customers passed by Time Warner Cable have bought its VOIP service to date -- so there's room to grow. Lang says Cisco is selling both the MGX 8800 gateway and its BTS 10200 softswitch to the cable guys.
The largest VOIP provider in the U.S. today, Vonage Holdings Corp. (NYSE: VG), says it is also buying Cisco gateways, as well as Sonus Networks Inc. (Nasdaq: SONS) gear. Vonage has just more than 2 million users, although its growth rate has slowed in recent quarters.
Dell'Oro Group analyst Steve Raab says the MSO business will only propel Cisco's VOIP business for so long. "I'd say it's a nice beachhead for them," Raab says. Raab believes Cisco will eventually target telephone companies with a suite of IMS-enabled VOIP products.
Cisco's Lang says his company is simply focusing its marketing efforts where the growth is.
Meanwhile Nortel, which everyone seems to agree had the greatest market share for the full year 2006, had a flat fourth quarter. "For Nortel, this is the perfect storm this quarter," says Synergy Research CEO Jeremy Duke. Nortel's VOIP gear sales do routinely hit waves and troughs from quarter to quarter, Duke says, but in the fourth quarter Nortel hit one of its "troughs" just as Cisco was riding high on strong sales to its cable customers.
"We had a very good third quarter, but I think that if you look at our fourth quarter, you will see a number that is extremely out of line with the overall trend," says Nortel's Bo Gowan.
Dell'Oro's Raab says it's unusual for Nortel to be "down in the trough and not up on the peak" during the fourth quarter.
"You definitely don't want to lay down your bets based on one quarter, but Cisco has had a pretty good run-up during 2006," Raab concludes. "It makes you pay more attention to them than you did one or two years ago."
— Mark Sullivan, Reporter, Light Reading