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Managed Services

Ciscosson Out to Spoil NokAlu's Wedding

Like a pair of love-struck teenagers introduced to each other's parents, Cisco executive chairman John Chambers and Ericsson CEO Hans Vestberg were brimming with smiles and compliments at the Swedish player's capital markets day earlier this week.

Having announced something of a game-changing partnership only the day before, the two companies were clearly out to make a good first impression with the investment community. But as the "Ciscosson" tie-up gets down to real business, it will become a lot harder to maintain the image of a harmonious couple. (See What's the Deal Behind 'Ciscosson'?, 'This Industry Will Be Won & Lost In the Next Three Years' – John Chambers, Cisco + Ericsson: Friends With Benefits and Cisco & Ericsson Forge Killer Partnership.)

This is, after all, not a relationship that is expected to lead to marriage. Realizing it lacked the IP technology credentials to thrive on its own, Ericsson AB (Nasdaq: ERIC) had looked at its options for mergers and acquisitions but decided that a partnership with the world's biggest maker of IP network equipment was preferable to purchasing a smaller rival such as Juniper Group Inc. , which had seemed a potential takeover target. (See Juniper Takes Haircut On 'Ciscosson' Team Up and M&A Speculation Swirls Around Juniper.)

Likewise, Cisco has been under pressure from customers to enhance its mobile/wireless and professional services capabilities, two of Ericsson's strengths.

In a dig at rivals Nokia Corp. (NYSE: NOK) and Alcatel-Lucent (NYSE: ALU), which are to formally unite in the next few months, Vestberg and Chambers also slammed mergers between equals as complex, slow and ultimately unworkable. Nokia's transaction with Alcatel-Lucent is a takeover rather than a merger, the Finnish vendor would be quick to retort, but it does bring together two companies of roughly equal size and has yet to assuage doubts among those who grimly recall the earlier, ill-fated mega deals between Alcatel and Lucent or Nokia and Siemens Communications. (See Nokia Makes €15.6B Bid for Alcatel-Lucent, Nokia/AlcaLu: The Key Friction Points and {715048}.)

Even so, while Nokia will be under immediate pressure to show it is not repeating the mistakes of the past, Cisco Systems Inc. (Nasdaq: CSCO) and Ericsson will have to convince analysts their partnership can deliver. No doubt, there is more overlap between the wireless product portfolios of Nokia and Alcatel-Lucent than the IP ones of Cisco and Ericsson. But while Nokia CEO Rajeev Suri can take a firm decision to phase something out, Vestberg and Cisco CEO Chuck Robbins may have to reach agreement on which products to favor in specific circumstances, particularly when it comes to the mobile packet core (Ericsson's focus of IP developments).

Customer relationships may be another thorny area. Cisco will be eager to get hold of Ericsson's little black book of wireless and managed services customers, just as Ericsson looks to tap Cisco's contacts in the enterprise sector. But will service providers and other businesses be happy about future arrangements that actually force them to deal with two suppliers instead of one, even if they are used to working with multiple vendors on their various projects? Cisco and Ericsson insist that feedback on their plans has been overwhelmingly positive but acknowledge they had only spoken with a small number of service providers before they announced their partnership to the world.


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Perhaps the trickiest bit of the whole affair will be collaborating on future products and services. A primary objective is the development of a network management system that will be assembled by combining Cisco's New IP and virtualization capabilities with the OSS/BSS expertise of Ericsson. This could prove absolutely critical to service providers clamoring for SDN and NFV products that are fully interoperable and manageable, but only if Cisco and Ericsson can pull it off. Although the two companies have previously worked together, the creation of joint engineering teams will obviously bring employees much closer together than they have previously been. Chambers joked that Cisco and Ericsson speak with different accents but have a similar culture. Yet observers may need more convincing a 30-year-old Silicon Valley icon has all that much in common with a northern European equipment incumbent founded in the late nineteenth century.

While transatlantic cultural differences almost ruined the merger between Alcatel and Lucent, those are widely seen to be in the past as Nokia prepares to absorb today's Paris-headquartered Alcatel-Lucent. That is not to say the integration of the Nokia and Alcatel-Lucent teams will be frictionless, but there is little ambiguity over who is in charge in the new-look business. Announcing executive positions at the enlarged organization last month, the Finnish player revealed that its own people will take ten of the top 13 jobs -- the other three being reserved for Alcatel-Lucent's leading IP and core-network experts. (See Nokia Faces Mobile Shakeout Post AlcaLu Deal and AlcaLu Execs Lose Out as Nokia Unveils New Top Team.)

Yet Cisco and Ericsson still appear to have stolen much of Nokia's thunder. Back in July, Nokia chief technology officer Hossein Moiin bragged to Light Reading that his company would be a "more complete player" than Ericsson after acquiring Alcatel-Lucent. Assuming Ericsson's partnership with Cisco proves functional, that claim may no longer hold water. And while the tie-up between Nokia and Alcatel-Lucent unites a major force in wireless with a powerhouse in IP, the partnership between Ericsson and Cisco brings together the number-one players in those respective markets, as Vestberg has been keen to point out. Even including the Nokia HERE business it is selling, Nokia and Alcatel-Lucent would have combined annual revenues of just $27.8 billion (based on recent results and current exchange rates), next to the $75.4 billion that Cisco and Ericsson would generate in tandem. That may be why Chambers felt confident enough to assert during Ericsson's capital markets day presentations that Ciscosson would leave rivals trailing in its wake. (See AlcaLu Deal Makes Us 'More Complete' Than Ericsson, Says Nokia CTO.)

Scale isn't everything, and both sets of companies are facing threats from a new breed of new IP player -- startups that do not have to worry about looking after a legacy business even as they flog the virtualized gear of the future. Then, of course, there is China's Huawei Technologies Co. Ltd. , whose inner dealings are largely hidden from the scrutiny of Western media and analysts but which surely represents the third powerbroker in the evolving technology and supporting services market. Huawei, clearly, is up against none of the integration and collaboration challenges facing its four Western rivals, but needs to overcome the concerns of some governments and service providers about its links with Chinese authorities.

Which party will flourish as network operators invest in tomorrow's communications infrastructure? It will certainly make for a fascinating spectacle. (See NFV Startup Could Challenge Incumbents and Huawei Working Hard for Rural Success.)

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

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