Cisco boosts telecommunications strategy with SBC pact

Cisco Systems gained a strong endorsement from a local phone company today, striking a multibillion-dollar alliance with SBC Communications for a variety of Internet equipment.

As previously reported, the alliance is significant for both companies. Cisco is focusing its sales efforts on telecommunications carriers, hoping to gain a larger share of a market with annual sales of more than $50 billion. SBC, on the other hand, has found its business driven by Internet-based data, not voice communications.

Terms of the non-exclusive, two-year marketing and sales deal were not disclosed, but SBC executives said it represented a "multibillion-dollar opportunity for both companies." SBC launched a $6 billion effort called Project Pronto intended to improve its high-speed Net strategy last fall.

"It's good news for Cisco," said Hilary Mine, analyst with industry consultants Probe Research. "It doesn't mean Lucent and Nortel won't get multibillion-dollar deals, but it's a significant foot in the door."

Cisco built its business by providing equipment for corporations and early entrants in the Internet service provider market. The company has extended that focus in recent years to include traditional telecommunications companies, such as Sprint, and a new breed of start-up carriers, such as Qwest Communications International.

Cisco has had a tougher time making inroads into the networks of the local phone companies, or "Baby Bells." The company includes US West and GTE among its customers, but it has yet to displace the significant investments the Baby Bells have made in equipment from telecommunications equipment veterans such as Lucent Technologies and Nortel Networks.

Thus, the SBC deal could represent an opportunity for Cisco to extend its current commitment to help SBC build its voice and Internet-based data networks.

"We view this as an important milestone," said Larry Lang, vice president of service provider marketing for Cisco.

Terms of the deal cover several of Cisco's data and Internet equipment technologies, including high-speed digital subscriber line (DSL) Net access and gateway gear, switching devices based on asynchronous transfer mode (ATM), dial-up access equipment, and virtual private network (VPN) technology.

One Wall Street analyst said the deal will probably be a blow to Newbridge Networks, which already has a relationship with SBC and was recently acquired by Alcatel.

Niche player Redback Networks also counts SBC as a customer for its high-speed access subscriber management technology, much of which is based on DSL.

Executives at the company said their sales to SBC are not affected by its deal with Cisco. "It's an expanding relationship going forward," said Randall Kruep, senior vice president of worldwide sales for Redback.

SBC executives said the Cisco deal does not shut out its other technology providers. "We have relationships with every other major player (in the industry)," said Tom McGrath, president of SBC's DataComm business.

SBC is the largest reseller of Cisco equipment to third parties and a significant user of Cisco technology internally, according to the company. SBC's DataComm business had about $3 billion in sales for its most recent fiscal year, according to executives, and is expected to double in three years.