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.
"Empowering the Internet generation".
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".
"We make the things that make communications work".
Founded: 1996 (former subsidiary of AT&T)
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
"How the world shares ideas".
Founded: 1895, as Northern Telecom, changed to Nortel Networks in 1999
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