Is Cingular Cold on Sonus?
This only adds to the recent Wall Street murmurs about how (NYSE: LU), which has been named as Cingular’s IP Multimedia Subsystem (IMS) contractor, could be pressuring Cingular to cap the use of Sonus switches at the core of the network in favor of its own Telica softswitches. (See Lucent Completes Telica Acquisition.)
“Due to interoperability concerns, we believe Cingular may be capping off deployments of non-Lucent VOIP suppliers,” says U.S. Bancorp Piper Jaffray analyst Troy Jensen in a note released to investors Monday.
A slowdown at Cingular could be very bad news for Sonus. While the carrier’s contribution to the Sonus bottom line tends to vary widely quarter by quarter, during the last two quarters it has been significant. Cingular contributed 41 percent of Sonus revenues in the second quarter and 35 percent in the third. (See Sonus Misses in Q3.)
Sonus spokespeople hadn’t answered requests for comment on this story at presstime.
Reports of the problems come just days after reports that Cingular is also having problems with the (NYSE: ALA; Paris: CGEP:PA) Spatial Wireless switching solution, which uses a (Nasdaq: TKLC) media gateway.
Sonus stock began dropping last Thursday afternoon, starting at a price of $4.20 and falling on high volume to $3.80 by midday Monday. Jensen told Light Reading the stock's downward movement could be attributable to someone catching wind of the goings-on at Cingular. (See Sonus Misses the Mark.)
Sonus's relationship with Cingular began when Cingular acquired AT&T Wireless for $41 billion in February 2004. AT&T Wireless had already begun deploying Sonus's VOIP equipment for tandem/trunking switching functions at the core of its network, and Sonus maintained that contract after the acquisition took place.
The Sonus gear even expanded into the Cingular network for a time after the merger. The vendor also captured a portion of Cingular's gateway MSC (mobile switching center) deployments, Jensen says. (See Sonus Chief: Come Fly With Me! )
But in October 2005, Cingular announced that Lucent had won its IMS contract, with the right to name the vendors that will supply the best-of-breed components in the IMS network. (See Cingular Picks Lucent for IMS.) In the IMS way of looking at these things, the softswitch is just one component that is expected to interoperate easily with all the rest. (See IMS: Simplify First, Add Apps Later.)
Light Reading asked Lucent whether it was exerting pressure on Cingular to use its Telica switches in place of Sonus's, reasoning that the Lucent’s Telica switches would integrate more smoothly with the rest of a Lucent-designed IMS network. (See IMS Guide.)
“We don’t comment on speculation,” says laconic Lucent spokesman Mike Alva.
Maybe Lucent won't. But others will.
“We believe Cingular's decision to deploy IMS-based equipment in the core of its network and concerns regarding equipment interoperability have caused the carrier to reevaluate current VOIP deployment plans," Jensen says in his note.
“The onset of IMS has resulted in much more of a blurring of the boundaries between the big legacy vendors from the carrier switch world, and the new softswitch companies,” says Heavy Reading analyst Graham Finnie. “They’re all moving toward IMS, and the IMS model is the same for everyone really.
“So certainly it poses some challenges to vendors that have built their business on being a dedicated softswitch provider for VOIP."
Sonus enjoyed an early advantage because it dedicated itself to building softswitches for VOIP networks. That translated into wide deployment of the softswitches and a solid track record. (See XO Leverages Sonus.)
But the way carriers buy softswitches is changing. Many believe voice service is becoming commoditized and that VOIP will soon be just one of many services delivered by the IMS network. As such, the criterion for choosing softswitches may be more about which vendor’s device is better engineered for the IMS environment, as opposed to which vendor makes a better softswitch. (See Cingular's Got Big FMC Plans.)
“The big Tier 1 service providers are creating these big-frame contracts and RFPs for networks based on IMS." says Finnie. "That means that they want an overall contractor to provide them with a soup-to-nuts type approach, probably bringing in lots of best-of-breed components from third parties. It is a slightly different approach from the way carriers have traditionally bought softswitches."
But it's also worth noting that Sonus's risks inside Cingular are very much up for debate. "By its own admission, Lucent doesn’t anticipate material IMS revenues until 2007, and as of now it doesn’t appear that trunking gateways is part of the deal," says analyst Eric Buck of Janco Partners Inc. "I don’t believe there is substantial [market share] risk to Sonus’s business with Cingular in the near to intermediate future."
Jensen maintained Piper Jaffray’s Market Perform rating on Sonus stock, pointing out that any loss of business at Cingular now wouldn’t be reflected in the revenue numbers for another two or three quarters.
Cingular is jointly owned by (NYSE: T) (formerly SBC) and (NYSE: BLS). (See Is an SBC/BellSouth Merger Next?)
— Mark Sullivan, Reporter, Light Reading