Riverstone Edges Out Cisco at Cox

Riverstone Networks Inc. (Nasdaq: RSTN) announced today that it has won a multimillion-dollar contract with cable operator Cox Communications Inc. (NYSE: COX) (see Riverstone Routes Cox). Terms of the deal were not disclosed, but the news was enough to edge the company’s stock up $0.58 (3.75%) to $16.05 on a day when the Nasdaq Composite lost 2.5 percent.

The deal is significant for several reasons. For one, Riverstone actually beat out market leader Cisco Systems Inc. (Nasdaq: CSCO) in the deal, according to Cox officials. Second, Cox is one of the leading cable operators in the market. And third, the cable market is expected to be one of the fastest growing service provider segments next year, as more cable operators provide data services via cable modems.

The deal calls for Riverstone to deploy hundreds of its RS line of edge routers throughout all 28 cable systems in the Cox network as part of an extensive program to create its own national, high-speed data provisioning system. While Cox officials wouldn’t give specific details, Jay Rolls, vice president of data engineering at Cox, did say that the deployment will take place over the next several months.

Rolls also says Riverstone is the only company providing Cox with gear for edge switching in its new network. Cisco’s 7600 router was in contention for the contract, but he says Cox decided to go with Riverstone for several reasons. One was cost. Riverstone offered a better deal on the gear. He also says Riverstone offered the same or better performance in areas like latency, and it offered a better support and service package.

“Riverstone’s pricing was competitive outright,” says. “We also liked the fact that we could get more custom care and service from Riverstone. Sometimes when a company is large, it can’t move as swiftly as a smaller player.”

Cox says it plans to use Cisco’s GSR family of routers in the core of its network.

The deal shows that Riverstone is making inroads against Cisco in the important edge-routing market. Cisco leads that market, with 60 percent market share during the last three quarters, according to Infonetics Research Inc. But that is down from previous years.

"A year ago [Cisco] had over 80 precent of the market,” says Michael Kennedy, managing partner at Network Strategy Partners LLC. “You know how that works. If people sense they are vulnerable, they won’t get the benefit of the doubt they’ve enjoyed with customers over the last five or ten years.”

The fact that Riverstone's product is targeted at a slightly different market segment may have helped it edge out Cisco. In an ISP network, customers need DS0 (64 kbit/s) and T1 (1.5 Mbit/s) interfaces. But in a cable network, the traffic is already aggregated into gigabit Ethernet pipes by the time it reaches the router in the cable head-end site, says Kennedy. Cisco, which has been very successful in the ISP market, is known for its DS0 and T1 aggregation, whereas Riverstone is known for its gigabit Ethernet interfaces.

Market share data gathered from Infonetics reflects this strength. While Riverstone comes in third behind Cisco and Juniper Networks Inc. (Nasdaq: JNPR) in revenue market share, it places second after Cisco in the number of ports shipped per quarter.

“Riverstone is known for its Ethernet ports, and those are generally cheaper,” says Kevin Mitchell, directing analyst with Infonetics. “So what these numbers mean is that they are selling an awful lot of ports, but, because Ethernet ports are generally cheaper than these other interfaces, they aren’t getting the same revenue as Cisco or Juniper.”

Cable operators are now a strategic segment of the telecom industry, because cable modems are beating DSL in the battle for broadband access in the United States. Cable operators are gearing up to take advantage of this new revenue stream. Right now there are more than 60 million cable subscribers, and only about 3 million of those are using cable modems. This means the market is only about 5 percent tapped right now.

But the operators face at least one big technical problem. They must upgrade their cable plants and build new infrastructure to link their networks to the Internet backbone. Currently, companies like AT&T Broadband, Comcast Corp. (Nasdaq: CMCSA, CMCSK), and Cox are using the [email protected] (Nasdaq: ATHM) network to connect their cable head-ends with the peering sites of the Internet. AtHome ran into financial problems and has filed for bankruptcy.

Cox and Comcast announced in August that they would be terminating their contracts with AtHome as of June 4, 2002. Instead of partnering with a third party, these providers are building their own networks. AT&T owned a controlling interest in [email protected], with a 23 percent ownership stake and a 74 percent voting interest.

The new cable networks present an opportunity to sell routers. Riverstone and Cisco aren't the only edge-routing companies poised to capitalize on this situation. Juniper recently announced the acquisition of Pacific Broadband, a maker of cable aggregation equipment (see Juniper Buys Pacific Broadband ). The deal should help Juniper get its foot in the door to sell cable operators routers. Also, Unisphere Networks Inc. (Nasdaq: UNSP) has recently announced Ethernet support, which should make it more attractive to cable operators, says Infonetics' Mitchell (see Unisphere Intros Ethernet Edge Router).

While the cable market may be one of the only growth markets in the service provider business, Mitchell cautions that the impact on routing vendors needs to be kept in perspective.

“The cable market opportunity is growing,” he says. “But it won’t be huge or dominate the revenue stream. Edge routing vendors will continue to sell the majority of the gear to the tier-one players like Williams Communications Group [NYSE: WCG], Verizon Communications Inc. [NYSE: VZ], and Qwest Communications International Corp. [NYSE: Q].”

— Marguerite Reardon, Senior Editor, Light Reading
guru 12/4/2012 | 7:30:30 PM
re: Riverstone Edges Out Cisco at Cox you are wrong...

Riverstone is mostly the YAGO people that Cabletron acquired. All of their technology is much better and different from the original CTRON garbage. They are more of a FDRY, EXTR competitor whereas CS was a cisco, bay competitor.

HarveyMudd 12/4/2012 | 7:30:30 PM
re: Riverstone Edges Out Cisco at Cox Riverstone,s product lines largely emerge from its roots in Cabletron. A lot of its products are just old retroftted with some new line cards, but nothing profound either in terms of products or features.

Cox is a service is largly a cable service provider having been in business for a number of years. Its customer base is relatively and its network relatively sparse with not so much traffic.

It is not clear how Cox came to the conclusion of buying Riverstone's products. It ios not clear who it used to select the Riverstone's edge router. It is also not clear if Cox developed an RFP to evaluate various vendors. A lot of stock cannot be placed in the choice made by Cox. The selection may be quite arbitrary and may not stand up closer scrutiny.

Since the Cox's core relatively small, there is not much for many vendors.
waverider 12/4/2012 | 7:30:28 PM
re: Riverstone Edges Out Cisco at Cox Much like the assesment of Riverstones sale to Cox and the process behind the descision by Cox, there is little of substance

"Riverstone,s product lines largely emerge from its roots in Cabletron.... That there is some breaking news!!! A lot of its products are just old retroftted with some new line cards.... Which products specifically? , but nothing profound either in terms of products or features.....

Would you consider the fact that the RS line of edge routers Delivers 88% More Gigabit Ethernet Density Than The Industry's Previous Benchmark a trivial feature? How about the fact that it's massive density in a small form factor combined with full Internet caliber routing-OSPF, BGP-4, IS-IS-as well as Metro optimized MPLS delivers best in class service creation capabilities. A trivial product? I think not....

I'm sure Cox, with one of the largest sub bases in the US uses Mudd's hourly newsletter to make descisions on thier RFP's How else could they have become so successful?

I find the inane and downright uninformed ramblings on virtually every bit of news, good or bad, difficult to understand.

Why not comment with some basis of fact when you are refuting the factuality of an announcement?

What happened to celebrating the little victories?.

Why be part of the problem when you can be part of the solution?

Happy Holidays and good will to all!!
inter_alios 12/4/2012 | 7:30:26 PM
re: Riverstone Edges Out Cisco at Cox This deal shows that Riverstone is serious trouble for Cisco.

They're better focused on a single market segment, and have slowly matured the Yago engineering team so that they have a better reputation for Metro routing and switching than any other shop in this industry.

RSTN makes a case study in how to take on an incumbent vendor

metroman 12/4/2012 | 7:30:23 PM
re: Riverstone Edges Out Cisco at Cox Riverstone has attacked a market segment that Cisco is weak in, even though they tout the 7600. (it has no MPLS and is expensive) They are the kind of organisation that Cisco fears and rumour has it that Cisco placed Riverstone squarely in their sights at their most recent sales conference. The other competitor they acknowledged was Juniper.

Junpier has also seen success targeting a market segment that Cisco had lost focus in. They have been going along with the assumption that they would always win that business and no-one would touch them. Juniper lead the way in saying, they can be beaten if you get the right message combined with a product that delivers.

Harvey Mudd and friends have a great deal to learn about people like Cox, I even doubt he has ever been outside of his own 4 walls to learn about them. People like Cox do not make a decision on a vendor overnight, they are exacting in every way to make sure that they can add value to their business. Cox are in it to make money so only those products that will deliver a return on investment are selected. I think if I was at Cox I would be offended by some of the comments.

This is also not the first Broadband aggregation deal that Riverstone have won from Cisco, look at Telenet in Belgium for the first one.
brahmos 12/4/2012 | 7:30:22 PM
re: Riverstone Edges Out Cisco at Cox it would be unreasonable for csco to expect 90+
percent market share in every category. I think
they accept there will be strong 2-3 players to
deal with in every segment.

just winning deals -vs- csco is no great cause
for a party unless one is just fighting for
survival (!)

let rstn and jnpr do well if they can, its good
for everyone.
metroman 12/4/2012 | 7:30:21 PM
re: Riverstone Edges Out Cisco at Cox I would check RSTN growth prior to suggesting survival. They are profitable with money after all.

The point was that Cisco are seen as vulnerable in some areas and don't seem to have the same capacity to control the market as they used to:

Share value makes aquisition more difficult than before and therefore they cannot buy the competition out.

Reducing revenue numbers mean competitors have a stronger financial argument against them.

Lower reliance upon vendor financing is hurting them.

Their products are less able (as always).

Their products in the edge router aggregation market are expensive (Cox).

I would refer you to the growth of Cisco during the last economic downturn. This is similar to the growth RSTN is showing during this dip.

People are now getting fired for buying Cisco.

rjmcmahon 12/4/2012 | 7:30:02 PM
re: Riverstone Edges Out Cisco at Cox I just got back from the Western Cable show. The attendance was light, mostly focussed on technolgy and noticably missing were any significant content providers/aggregators. My opinions:

o Cable companies will undergo consolidation. Maximum of 4 players, maybe less.

o Cable companies will win the last mile battle to the consumer premise because they have to. They will use data access revenues in attempts to compensate for their losing hand in content revenue. (Today, given a choice, the cable co's would drop sports programming because the content owner is getting all the revenue. The problem is that sports are the perishable and the renewable programming that their subscriber base wants. Programming is the scarce resource and not bandwidth, therefore they must play sports even at a loss.)

o Cable cos will start looking to local advertising for supplemental revenue. (Their new ad-insertion/VOD systems should tie right into Home Depot's howto videos,in my opinion)

o Optical networking companies should look to supply VOD feeds into the MSOs. Finding the programming sources for the feeds seems to be the challenge.

o Technology providers, to succeed in selling to the cable cos, will need to figure out how to reduce the effects of technology churn. They should also develop digital video competencies. I did not find one technology provider who has figured out how to do this. (PS. I wouldn't take much out of the Cox purchase of Riverstone gear other than that reducing capex cost is one component which helps a cable co with technology churn.)

o Overbuilders seem to be focussed in LA, which indicates to me they are mining the content, not the consumers. (I wonder if this tactic will work as Hwood has learned from their previous loss to their national distributor, i.e. Blockbuster)

Overall, the technology providers seem to be last in the food chain. First programming, second distribution, third technology, in my opinion.

Finally, I believe we all should learn a lesson from C-span's BookTV and notice the Amazon spikes after their bus stops at a local bookfair, where they interview a local writer while broadcasting from a small set in their yellow bus. If access to the distribution networks ever becomes unfettered, anybody with a bus and a local interest will be able to drive national commerce. Baby boomers seem to buy stuff if the pitch isn't biased by an advertiser. If, if, if...
MKTG_Hack 12/4/2012 | 7:29:56 PM
re: Riverstone Edges Out Cisco at Cox RJ:
You're right on the money. In the cable industry content is absolutely king and I think the hardware vendors and MSOs need to get far more creative in how content is developed. One of the major problems in the tech industry is that very few (no one?) ever thinks anything all the way through and does something completely different. If the MSOs want to wean themselves from the sports boob - and if vendors want to sell them a lot more stuff - they need to work together to entice the existing "content" to become more available for home delivery.

A few ideas (yea I know - they're stupid but I'm a Hack, remember?)
Education. Look at the success of online education. Why not move it to cable so you can actually see the teacher and the teacher can see you? So maybe a consortium is created so that when a student enrolls in a degree program, part of the tuition includes a small cheap video camera to make this possible? Someone from the MSO industry is going to have to work through this idea and then sell it to a university, though. It is called market creation!

Concerts, circuses, plays. Right now Broadway is hurting. So why not broadcast the plays via cable to the homes of people who are still afraid to go to NYC or simply CAN'T get to NYC.

First Run Movies - why wait until everyone has seen a film to distribute it via cable? Why not try a few first run releases? There are lots of films that play only in NYC and LA - Sundance winners, foreign films, etc etc that could be delivered straight to the home and bypass the sometimes cowardly "mass market" movie chains.

My point is that content is all around us but most of the content producers still don't understand how home delivery will make them money. I think it is up to the MSOs to work out the model FOR the content people, sell it, and then laugh all the way to the bank.
Probably too creative for American industry tho.

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