Riverstone Hitches a Ride With Marconi

Riverstone Networks Inc. (Nasdaq: RSTN) and Marconi plc (Nasdaq/London: MONI) yesterday announced a partnership to supply carriers with gear for Ethernet services (see Marconi, Riverstone Team on Metro). Terms were not disclosed.

The vendors have agreed to jointly sell carrier solutions that include Marconi's gear, such as its core switches, with Riverstone's edge aggregation routers. The main focus will be in Europe, the Middle East, and North Africa, though the vendors say they'll extend to other parts of the world eventually.

Why this particular geography? According to Marconi, carriers in these regions have a better business model for selling Ethernet services than North American carriers do. They are likely to add Ethernet services to an ATM or Frame Relay core, instead of trying to tack them onto ATM or Frame Relay end-user connections.

For Riverstone, this contract is the latest of several in which the router vendor has partnered with a larger, more established player to get international business that might otherwise elude it. "We don't have the type of reach in Europe, North Africa, and the Middle East that [Marconi does]," says Andrew Feldman, Riverstone's VP of corporate marketing and development. Marconi has full-on metro deployments in these regions, he notes, in places where Riverstone has no independent presence.

Riverstone has a similar longstanding agreement with Alcatel SA (NYSE: ALA; Paris: CGEP:PA), which has helped Riverstone mine Ethernet services with MPLS in Russian deals (see Deal Talk Boosts Riverstone, LR Index, Is Russian Opportunity Knocking?, and Riverstone Wins Russian Contract). It's also got an agreement with Sonus Networks Inc. (Nasdaq: SONS) to sell gear alongside that vendor's softswitching equipment in the U.S.

Feldman says it's reasonable to assume more contracts will come, particularly in the Asia/Pacific region. More than that, he's not saying.

For its part, Marconi says Riverstone has cheaper Layer 2 aggregation than Marconi offers in its wares. Marconi has Ethernet interfaces on its high- and low-end platforms, and its Sonet/SDH gear can drop off Ethernet traffic (see Marconi Picks Xilinx for SDH and Marconi Adds GigE to Access Hub and Multiservice Switch Test). It's also got MPLS in its BXR-48000 core switch (although Marconi declined to have its MPLS evaluated in a Light Reading test, see Multiservice Switch Test). But it lacks a platform with the density of Ethernet interfaces that Riverstone's has.

"Riverstone has a high-density gigabit services delivery platform," says Rich Kushner, Marconi's VP of industry relations. "We found ourselves together in several deals and decided to formalize it."

Marconi will connect Riverstone's gear with its BXR-48000 core switch and other equipment. Marconi also will sell Riverstone gear with its softswitch, which Marconi now sells only to customers in Europe. Interestingly, in today's press release, Marconi gives the U.K.'s Jersey Telecom, one of its softswitch customers, as an example of a company where its partnership with Riverstone is active.

Since Riverstone's only other softswitch deal is with Sonus in the U.S., it seems a perfect fit. Riverstone also isn't worried about the Marconi deal affecting its agreement with Alcatel, which competes with Marconi in Europe's next-gen metro networks. "Partners usually take you to their strongholds," Feldman says -- i.e., accounts in which competitors aren't likely to appear.

The deal seems nothing but good for both companies. Both need all the extra revenues they can get, and both have a dearth of money to spend developing extra features on their own. Riverstone's gross margin reductions raised alarms in its latest financial report (see Riverstone Disappoints the Street). Marconi is in the midst of a major restructuring, where every dollar is accounted for, and Marconi execs have been clear about the need for strategic partnerships (see Mike Parton, Marconi and Marconi Details Restructuring).

What's not clear is how the Marconi/Riverstone matchup will play out as one of the growing number of choices facing carriers interested in installing Ethernet services. Those choices seem to multiply monthly, with vendors like Cisco Systems Inc. (Nasdaq: CSCO) and Nortel Networks Corp. (NYSE/Toronto: NT) weighing in regularly with news of their own (see Nortel Beefs Up Ethernet Attack and Cisco GSR 12000 Sent to the Edge). There are edge routers and MPLS; Layer 2 Ethernet and VPLS (see Nortel Beefs Up Ethernet Attack and VPLS: The Future of VPNs?).

Still, for current Marconi customers, the Riverstone play could make the difference between keeping or losing a contract. And for both vendors in this difficult market, that's nothing to sneeze at.

— Mary Jander, Senior Editor, Light Reading

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