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Optical/IP

Introducing... Normenscatoni!

Whatever happened to evolution?

The backwards telecom industry is trapped in a gridlock ruled by bankruptcy lawyers, bullheaded shareholders, government bureaucrats, and greedy executives, shutting down the process of good old Darwinian herd-thinning (see Bankruptcy Boondoggle). It's time to take some action. We need to get things moving.

So, let’s get started. This project demands swift autocratic decision-making. We've decided to assume the role "Telecom God" or TG for short. TG has supreme authority over the industry, forcing companies and agencies to take action by royal decree. By declaring who survives and who does not, and who merges with whom, TG will map us back to more profits. (TG refers to Himself in the third person, as Gods are wont to do.)

First: Planning. Even the Gods need help, so TG has consulted “Setting a Course for Convergence: The Incumbents’ Wireline Strategies,” a cracking report written by the mortal Geoff Bennett, Heavy Reading Chief Technologist. (Heavy Reading is Light Reading Inc.’s paid research division.)

Bennett’s report, based on interviews with dozens of carriers as well as the CTOs of the six major incumbent equipment suppliers, comes to a sweeping conclusion: Telecom networks are quickly merging into a new infrastructure based on IP and MPLS. But many of the incumbents are ill-equipped for this transition, and there is a lot of product overlap.

Makes sense, eh? Well, you'd be surprised at how ill-prepared some of these companies are. Take a look at how fast Ciena Corp. (Nasdaq: CIEN) got stuck in Long-Haul Hell, without a viable outlet to multiservice networks. And Nortel Networks Corp. (NYSE/Toronto: NT), after nearly a decade of efforts, has still made only modest progress on its IP routing pilgrimage.

TG used Bennett's reports to align strengths and weaknesses for the coming convergence. Naturally, it made sense to take the companies as ranked from strongest to weakest, and pair the strong companies with the weak.

To begin, Cisco Systems Inc. (Nasdaq: CSCO) is ranked as the strongest and Lucent Technologies Inc. (NYSE: LU) the weakest in Bennett's report. Conveniently enough, Cisco ranks very highly in packet-based technologies and has a strength in enterprise accounts. Lucent, in contrast, has a top-notch carrier customer base and strengths in the metro and core optical, while its packet position is weak.

TG notes that the stock market had valued Cisco shares very highly (making good acquisition currency), giving it a market value of $146 billion (!) and it has nearly $10 billion in cash and short-term investments. Lucent, in contrast, was trading at a mere $3 and has a paltry market cap of $13 billion. Cisco could buy Lucent for a reasonable price, using a mix of stock and cash, and create a company with complementary product lines.

Hence, our new industry superpower: Cisclu.

TG says it is Good. This deal looks dandy because Cisco could use some of its cash to help eliminate Lucent’s $5 billion debt, reducing interest payments and increasing cash flow. Lucent’s $1 billion per year in pension costs would be a headache, but we’re suspecting that the R&D value Cisco would receive with Bell Labs could make up for this because the R&D budgets could be combined.

Okay, what about the others? The “Middle Four” we’ll call them. They consist of (in Bennett's ranking): Nortel, Alcatel SA (NYSE: ALA; Paris: CGEP:PA), Marconi Corp. plc (Nasdaq: MRCIY; London: MONI), and Siemens AG (NYSE: SI; Frankfurt: SIE). TG has gone ahead and paired them off.

Nortel, the next strongest company, has strengths in ATM, Sonet/SDH, and even a bit of enterprise business. They get Siemens’s ICN business. For a psalm. Folks forget that Siemens AG is a diversified engineering company that has plenty of other businesses and doesn’t really need to continue mucking around in telecom. Let there be Normens!

That leaves Alcatel and Marconi. Just for chuckles, TG will pair off the English with the French. That creates the mellifluous Alcatoni.

In this new environment we have Cisco-Lucent (Cisclu), Nortel-Siemens ICN (Normens), and Alcatel-Marconi (Alcatoni). Clearly, The Cisclu combo looks to be the Monster of the Mix.

What about all those other companies? You’ve got fairly large incumbent challengers like Ciena, Juniper Networks Inc. (Nasdaq: JNPR), and Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA). TG has decided to use them to beef up positions against the Cisclu Behemoth. Normens looks weak in routing and needs to compete on the packet front with Cisclu, so they get Juniper. Alcatoni could use some more switching products and revenue in North America – so we'll toss them Tellabs and Ciena, because they need to beef up the revenue picture.

And the remaining small fry? All those startups left over from the IPO boom that are just sitting on cash, doing not much of anything? Tossing them to the Big Boys would disburse the cash to the remaining “Big Three,” who could all use it.

Over time, TG reserves the right of further consolidation to combat the slouching Cisclu Beast. The newly formed Normens and Alcatoni may merge, forming Normenscatoni – Bibbity-bobbity-boo!

There now, don’t you feel better about things? If we would all just get there faster, we’d be well on our way to a speedy recovery. This plan would allow the remaining companies, which would then have fewer competitors, to stabilize pricing and make some money.

But yes, there's one big problem left. Still left to fix is the carrier space, the prospects of which give TG a headache, because it also involves not just mergers, but the question of regulation.

TG has weighed eliminating the Federal Communications Commission (FCC) to start with, but that's a large task and may necessitate a deal with the Antichrist – a job for another week. TG is going to rest now.

— R. Scott Raynovich, US Editor, Light Reading

mwanikar 12/4/2012 | 11:16:39 PM
re: Introducing... Normenscatoni! Nice to read a good article.

In my openion, apart from the US/European bigies, one also need to keep in mind the Chinese and Korean telecom companies, as they a potential to challange all the present big ones in medium to long term future.
OptoScot 12/4/2012 | 11:16:38 PM
re: Introducing... Normenscatoni! As a strategist Mr R. Scott Raynovich, you've just failed your first test.

The concept of enabling CISCO, the world's greatest producer of bottlenecks, to dominate the world's Telecom/IT infrastructure is not just politically arrogant it's the technological equivalent of determining the world should stand still.



Scott Raynovich 12/4/2012 | 11:16:35 PM
re: Introducing... Normenscatoni! Hmm, so I guess you have no confidence in Normenscatoni's ability to fight the Cisclu juggnaut? After all, we gave them Ciena, Tellabs AND Juniper. You could think that would be enough. What if we threw in Sycamore and it's $700M in cash? Can that get the deal done?

Peter Heywood 12/4/2012 | 11:16:33 PM
re: Introducing... Normenscatoni! I agree. Huawei now claims to be the world No. 2 in DSLAMs:

http://www.lightreading.com/do...

Also, Huawei is now world No. 1 in traditional telephone switches according to Dittberner, reported yesterday on Boardwatch:

http://www.boardwatch.com/docu...
Scott Raynovich 12/4/2012 | 11:16:32 PM
re: Introducing... Normenscatoni! Good point... yes, we didn't even consider the implications of the Asian players acquiring.
whyiswhy 12/4/2012 | 11:16:32 PM
re: Introducing... Normenscatoni! History has shown that things tend to settle out based on continental divides...i.e. the dominant politico-industrial centers...

-Why
BobbyMax 12/4/2012 | 11:16:16 PM
re: Introducing... Normenscatoni! Cisco has no role or a very peripheral role in the overall telecom industry. So far it has acquired over 80 companies and none of them brought amy spectacular technology. It made a lot of money selling routers at a exhorbitant procedure. It has unprecedented acess to the router market for about 10 years or so.But now its days are waning and there will be more eqalibrium in the market place. There is no consumer market report that compares price, performanceof routers from various vendors. This makes the buying decision almost impossible.

There is no comparison betwween Cisco and Lucent. Lucent because of corrupt management and buying a string of useless c0mpanies, it destroyed itself to the core. Even today a large part of the workforce is idle and there are no new products from Lucent in years. Most RBOCs have abandoned Lucent.

Armstrong and Schach, both of of AT&T of drowned Lucent in the deep sea. It is almost impossible for Lucent to recover and become a market player.
I think Lucent should adjust its workforce around 5,000. Lucent/Bell Labs was a world icon but not any more.

There is no product strategy at Lucent. There are people who are still getting stock options and bonuses. Pt Rusoo does not have the expertise and fortitude to run a high tech company like Lucent.
opticalwatcher 12/4/2012 | 11:16:07 PM
re: Introducing... Normenscatoni! If we go by BobbyMax's opinion of Lucent and his opinion of ANY company based in California such as Juniper, maybe these companies can be combined to create: Lucifer.

More seriously, I expect that some of this consolidation will actually occur as market activity picks up, though maybe not the grand scale of a Lucent/Cisco combination.




whyiswhy 12/4/2012 | 11:16:01 PM
re: Introducing... Normenscatoni! Agree with Tera, but not about scale as the problem.

Just compare the bios of the Cisco BOD with those of Lucent.

Er, sorry, there is no comparison.

The best strategy is for Cisco to just bide its time, and let the LU BOD and its direction acrue more of a discount.

The LU BOD will then sell off what is left for what they can stuff into their pockets and run for the hills.

One year.

-Why
dbostan 12/4/2012 | 11:14:38 PM
re: Introducing... Normenscatoni! I haven't laughed so much in years. Great article and some of it might become reality.
My only hope is that Cisco will not commit suicide-buying LU.
Another one to watch is Alcatel. It has great potential.
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