As the network and telecoms sectors continue to converge and rivals
look to battle it out, Annie Gurton assesses what this means for
your business
In today's world, with voice and data networks converging,
companies that previously worked in separate sectors are now
finding themselves competing. Cisco and Nortel, for instance, were
distinct as networking and telecoms companies respectively, but
increasingly their product lines are crossing and duplicating as
they chase the same customers with similar offerings and common
technology objectives.
Along with Alcatel, Ericsson, Siemens, Fibernet and others,
Lucent, Cisco and Nortel are racing against each other to build
systems that can send increasing volumes of data across networks
faster and more cheaply. In the latest in a series of deals,
Californian-based Cisco announced a $2bn (£1.25bn) deal with
Pirelli to buy its optical systems division and a 10% stake in
Pirelli's optical components and undersea cables business.
Canadian-owned Nortel recently agreed to spend $3.2bn acquiring
Qtera, a Florida-based company that has no sales to date and few
customers, but which has developed a product that allows telephone
and data traffic to be sent over longer distances at a lower
cost.
With analysts IDC predicting that the market for optical
networking will exceed $40bn by 2005, there is obviously plenty to
play for and Nortel, Cisco and Lucent seem likely to be the three
to watch. Each has its own strengths and specialities, despite
plenty of cross-over in products and services.
All three of the networking giants are wooing partners, systems
integrators and value-added resellers (VARs) to help boost their
market share. They are determined to reach all kinds of businesses
and enterprises and help companies get online, develop IP-based
solutions and show bottom-line returns as fast as possible. All
recognise the problems that large organisations face in reaching
small and medium enterprises, and are chasing a finite number of
suitable third parties with the intention of signing them up.
Cisco, for example, launched a programme for third parties in
December 1999 that offers training, resources and certification in
IP telephony solutions for select third-party partners.
Only the very large third parties and systems integrators can
sign up with more than one of the big three, and consequently they
are keen to stay loyal to the one that has selected them.
Although vendors and third parties engage in a pantomime whereby
the vendors are seen to be "chosen" by the third parties, the
reality is that more often third parties themselves, particularly
the small ones, have to jump through hoops to gain accreditation
and authorisation from the vendors.
Consequently, many of the third parties are defiantly loyal and
defensive about their vendor. Darren Prevett, networking business
manager with value-added reseller Ultima Business Systems, says:
"Few vendors have been around or have maintained such a strong
position for as long as Cisco Systems. From the outset Cisco has
led the way in networking, introducing early bridges for the Campus
network, giving it the springboard into its current market as
corporate and Internet service provider."
These markets have enabled Cisco to gain a market capitalisation
of $220bn - the fifth-largest in the world - and have pushed its
share price up by more than 2,300% in the past five years. Cisco
now faces its biggest challenge yet: entry into the telephone
equipment market dominated by Nortel Networks. Its objective is to
triple sales over the next decade. To achieve this, Cisco must
muscle in to the $225bn market where the company has a share of
only 1%. To do this, it must outperform its larger and more
experienced rival, Nortel.
"Just as Cisco is trying to crack the lock into the telephone
equipment market, the telcos are eating into Cisco's traditional
market. Nortel and Lucent are aggressively opening routes into the
network markets previously dominated by Cisco," says Prevett.
"Both are beefing up their offerings to include more Internet
technology. Nortel merged with Bay Networks in 1998 and Lucent
bought Cisco's rivals Ascend Communications and Nexabit Networks in
1999. These moves culled the vendors working in the networking
arena, and forced Compaq to withdraw and IBM to drop its own
networking devices to sell Cisco."
It is not hard to see which vendor Ultima is aligned with, and
you will hear a similarly positive story from a third party aligned
with Lucent, or Nortel. However, Prevett is keen to be impartial.
He adds: "Nortel has the weight advantage, with 1998 revenues of
$17.6bn against Cisco's $6.4bn and staffing levels about 3.5 times
larger with approximately 70,000 people worldwide."
It is not necessarily a case of "Who will win?". There may never
be an individual clear winner, and the market lead may continue to
shift between Lucent, Cisco and Nortel depending on who you talk to
and how you slice and dice the figures. All have the resources and
capability to stay the distance, to continue to build, and to carve
a major share out of the market. They also have the power to take
sideswipes at the others, although none are so vulnerable that they
will necessarily fall. For example, Nortel recently announced that
the router market was dead and slashed the cost of its routers by
up to 50% in a clear attempt to undercut Cisco in its own market.
However, Cisco has survived.
One thing is clearly true: the war between the three
networking/telecoms suppliers will be good for budget-conscious IT
managers. You are likely to be able to negotiate better deals,
improved technology and end-to-end service and support by playing
the three, or their representatives off against each other.
However, Dana Rasmussen, product strategy manager with
Seimens-ownedvendor Unisphere Solutions, urges caution. He believes
some vendors are diversifying too far away from their core areas in
an attempt to compete. They are being tempted into offering
everything that their customers need, such as single numbering,
integrated messaging, data services and remote connectivity,
relying on their third parties to fill in the gaps that they cannot
deliver themselves.
"If a single company could offer all these and more, it would be
like a magnet drawing and retaining customers," he says.
There are always problems when markets expand as fast as the
Internet and telecoms worlds, and although the future may see,
according to Rasmussen, Internet, Lan, Wan, PSTN, PSDN and wireless
relegated to the history books and replaced by one network, he says
that it will be some time before this happens.
"Eventually, users will access a single network with the help of
telecoms companies that have evolved to become communications
providers, incorporating ISP, broadcast, voice and data transfer
services," he says. However, for this one network across the
enterprise, Internet and telecoms network to come into being,
investment in development is necessary. But with Cisco, Nortel and
Lucent trying to outdo each other, innovation and development is
being held back and network managers may have to compromise to
realise the full potential of convergence.
Part of the problem of converging and bringing together the
enterprise, Internet and telecoms networks is that each vendor
brings a different culture and philosophy. Steve Gerrard, director
of marketing at Alcatel sees much posturing and positioning.
"It is impossible for all the big companies to develop all the
new technologies that they need to compete while maintaining
development on their existing and core products, so there are bound
to be alliances and mergers as well as jostling and talking up
their strengths and positions."
Alcatel's Gerrard thinks that Lucent, Cisco and Nortel are seen
to be the lead players only because they are being talked up by US
analysts, and believes that other companies like his are equally
well-placed to deliver the services that customers really need,
particularly UK or European-based enterprises.
"IT managers should consider three factors in a potential
vendor. One is the length, depth and breadth of the product and
service portfolio; secondly, the experience and ability across the
entire spectrum of communication media, including voice, data and
image; and thirdly, the scope and spread of support and service
facilities and representatives.
Gerrardadds:"With regard to support levels, IT managers will
have different requirements depending on their own in-house
resources and the structure and size of their company. There is
always an element of horses for courses, but the point is not to be
influenced by factors that are not appropriate for you and your
firm, such as the views of US analysts if your company is entirely
UK-based and has specific requirements."
Nortel's vice-president of marketing solutions Bill Joll
believes the companies that survive in the convergence market need
to offer three "classes" of service: access services, with products
that can integrate access to all services through a single
broadband IP pipe; interchange services, which can support enhanced
voice and data communications services; and application services,
leveraging integration between previously distinct environments. He
says: "IT managers should be seeking to prevent costly duplication
and seek end-to-end infrastructure, products and support."
Just as the Internet is emphasising the need for open
communications and information flow between enterprises, customers,
suppliers and partners, there also needs to be greater trust
between vendors, third parties and ITmanagers in companies
experimenting with converged solutions. The issue is not which
vendor will "win" in the convergence war, but which will offer the
most appropriate on-the-ground service and product portfolio for
each customer enterprise.
Nortel's Joll has the last word: "All the vendors have to keep
in mind is that IT managers are seeking the most powerful and
flexible solution for the least money, requiring the minimum of
support and maintenance.
"Obviously, reducing the technology options to a single,
ubiquitous converged network is the ideal, as long as innovation is
not lost in the process. That can happen when things are reduced to
a lowest common denominator. Provided openness and interoperability
are maintained, innovation is encouraged to flourish and customers
always have choice, then the telecoms market should remain healthy.
That is always going to be good for IT managers and their
organisations as well as the vendors involved."
What does convergence mean for you?
The brave new world of convergence with unified networking and
messaging should mean considerable economies for the IT manager.
The key words should be "interoperability" and "ubiquity", and
choice should not mean lock-in. Vendors are looking for commitment
from IT managers, and are prepared to offer competitive costs for
products and services in exchange for contracts. The benefits will
be tailored services and support, which can help customers derive
true benefits, economies and efficiencies from their networks and
telecoms.
At the moment, few organisations are fully exploiting the
opportunities and technologies available by integrating IP
applications into their business systems and solutions. By working
more closely with the third-party representatives of some of the
large networking and telecom vendors, and developing a relationship
of trust, IT managers could be getting far more from the systems
available, or that they already have invested in. There is often a
reluctance to invest in developing relationships with vendors for
fear of bringing them too closely within the organisation and
developing too much dependence on a few individuals.
Internet giants The worldwide communications/networking
market is expected to be worth upwards of $800bn by 2003. Cisco,
Nortel and Lucent are well-placed to dominate it.
Cisco
"Empowering the Internet generation".
Founded: 1984
Employees: 20,000
1999 revenues: $12.2bn
1999 profit: $2.1bn
Acquisitions: include Pirelli Optical Cable, Cerent
Corporation, Sentient Networks (1999), American Internet
Corporation, Selsius Systems (1998), and Ardent Communications
(1997).
UK Customers: The company claims to work with "most of
the FTSE 100".
Lucent
"We make the things that make communications work".
Founded: 1996 (former subsidiary of AT&T)
Employees: 153,000
1999 revenues: $38.3bn
1999 profit: $4.8bn
Acquisitions: include Ascend, Kenan (1999), SDX, Prominet
(1998), Octel Communications, and Cascade Communications (1997)
UK customers: include BT, Barclays Bank, Scoot, Scottish
Widows, Halifax and Adornis.com
Nortel
"How the world shares ideas".
Founded: 1895, as Northern Telecom, changed to Nortel
Networks in 1999
Employees: 70,000
1999 revenues: $21.3bn
1999 profit: $1.5bn
Acquisitions: include Qtera (2000), Clarify, Periphonics
(1999), and Bay Networks (1998)
UK customers: include British Airways, BT, Energis, HSBC,
Bass Group, and Cable & Wireless