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Optical/IP

Lucent & Cisco: Together at Last

It took the telecom depression to force a partnership between once-bitter rivals Lucent Technologies Inc. (NYSE: LU) and Cisco Systems Inc. (Nasdaq: CSCO).

Lucent today announced today that it will be reselling Cisco's IP networking gear as part of its mobile wireless portfolio.

This is the first reseller agreement that has been announced between Cisco and Lucent. The rationale behind the partnership is straightforward: It fills key product holes in Lucent’s wireless portfolio; and it provides Cisco a sales channel into the mobile wireless market.

The three year, non-exclusive agreement calls for Lucent to resell three separate Cisco products to wireless carriers. Terms of the deal were not disclosed.

The Cisco products to be resold by Lucent include: the Cisco Packet Data Serving Node (PDSN), which enables CDMA operators to provide mobile data access to the Internet and to corporate intranets and extranets; the Cisco Gateway GPRS Support Node (GGSN), which enables GSM and UMTS operators to deploy mobile data services; and the Cisco MGX 8000 Media Gateway, an ATM multiservice switch that aggregates radio access traffic and transports voice traffic over IP and ATM networks.

“It’s a win-win for both companies,” says Steven Levy, an analyst with Lehman Brothers. “For Lucent it offers them a best-in-class IP systems portfolio and will probably expand their ability to win contracts. And for Cisco it gives them a sales channel into incumbent carriers.”

Analysts had been speculating on a Cisco/Lucent deal since Lucent first began cutting development of key products late last year. Unstrung has been reporting on a possible deal for the past few months (see Springtide Ebbing Away? and Lucent: All Sizes Fit All).

In October, Lucent discontinued development of both its IP aggregation switch, the SpringTide Service Switch, and its ATM multiservice switch, the TMX 880 (see Lucent Silences SpringTide and Lucent Chops TMX 880). At that time the company announced that it would be concentrating on markets like mobile wireless through partnerships with key players (see Lucent Clarifies Product Strategy).

“We cancelled the Springtide product in order to put those resources into other areas,” says Mary Ward, a Lucent spokesperson. “And we stated then that we would be focusing on partnerships to address those market segments. That’s what we’re doing with Cisco.”

Ward would not say whether or not the agreement will be expanded to include other Cisco products in the future.

”We’ll continue to partner aggressively where it makes the most sense to do so,” she added.

Cisco will now likely use the deal to find new areas of growth in the service provider market. It has won at least one key regional Bell operating company (RBOC) account with SBC Communications Inc. (NYSE: SBC) (see Cisco Lands SBC). It’s also expected to win part of the Verizon Communications Inc. (NYSE: VZ) IP network buildout.

While Cisco has managed to win some incumbent carrier business on its own, it’s clear that to penetrate wireless providers, partnerships are key. Cisco already has reseller agreements with Motorola Inc. (NYSE: MOT) and Nokia Corp. (NYSE: NOK). Cisco’s competitor Juniper Networks Inc. (Nasdaq: JNPR) also has partnership agreements in place, including one with Nokia. And it has been developing wireless routing products jointly with LM Ericsson (Nasdaq: ERICY).

“It is a tough market,” says Cisco spokeswoman Catherine Stewart. “It helps to partner and complement technologies where it makes sense.”

— Marguerite Reardon, Senior Editor, Light Reading
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