Lucent Technologies Inc.
Dow Jones Newswires -- September 22, 1999
SMARTMONEY.COM: How Lucent Aims To Keep Slugging
By Alec Appelbaum
Smartmoney.com
This story was originally published earlier Tuesday.
NEW YORK (Dow Jones)--Lucent Technologies (LU) and Cisco Systems (CSCO) are the Trinidad and De La Hoya of the tech world. They boast and bulk up and lunge at each other, and we all pay attention because we enjoy the artistry.
And at least so far, we've pretty much been able to win no matter which side we bet on.
Lucent wants to draw more bets for the title fight. Having inherited a huge customer list of phone companies from former parent AT&T (T), it's battling with Cisco to supply communications companies with the gear for a new era of business in which the Internet makes the phone line a conduit for all sorts of cheap information. They came at the market from opposite corners: Cisco grew huge outfitting networks for Internet service companies that want to get into voice service; Lucent has been helping old phone companies harness the Net. Now, as carriers from AT&T on down are embracing new technologies, the distinction between phone companies and Internet companies is becoming fuzzy. Cisco is going after Lucent's phone-company market, winning orders from Sprint (FON) and others. And Lucent is supplying gear for high-speed digital service providers and other members of the new breed.
To pump up for its assault on that market, Lucent has been on the acquisition trail, buying data-communications star Ascend Communications in June and making smaller hardware, software and services deals over the summer. Helping to oversee this push is Pat Russo, Lucent's executive vice president in charge of strategic planning -- and a rumored successor to CEO Richard McGinn. SmartMoney.com caught up with Russo to talk about the market and the bout with Cisco.
Russo, who steered the company's business communications systems unit through a turnaround when it was part of AT&T, wastes no time in pooh-poohing Cisco's two recent acquisitions. In those deals, Cisco paid nearly $7 billion for two optical networking companies, Cerent and Monterey Networks, in order to bec ome a leader in optical hardware used by big data networks. Cisco can pick up "two companies,' she says, but Lucent can flex "over 2,000 patents alone in the optical field" and "either already has or will soon have what Cisco is acquiring." But Lucent isn't the only networking combatant to make such boasts. Almost everybody these days claims to have every necessary flavor of equipment in-house. That's why Lucent has been trying to differentiate itself as a service company -- not just a fully stocked technology shop but a counselor that can help networking companies figure out how to make their data networks more useful. Lucent's $4 billion acquisition of consulting firm International Network Services, announced this summer, figures as prominently in its battle plans as any of its high-grade equipment. Consulting services "become increasingly important as more and more service providers have come into the market who don't have technical depth and skill and really want to be focused on generating revenues,' Russo says. "Increasingly, software and services are really critical." Once the INS acquisition closes, Lucent expects 30,000 of its 140,000 employees to devote themselves to services.
Naturally, you can expect these consultants to help clients in part by putting together customized bundles of Lucent gear. And they're likely to find clients in what will be an increasingly important market -- startup carriers that offer voice telephone and data service over the Internet.
The company has bulked up on software that makes running such new network services easy and economical in the past year, starting with the acquisition of a customer-care software maker in January and including the introduction of its Softswitch programs that aim to replace hardware switches in networks.
And once those startup Internet-based carriers are up and running, Lucent intends to sell software and software management to help old-style phone companies and newfangled ones connect seamlessly so that folks like you and I can send emails and make phone calls no matter what system we're on. 'You have to do something to make a connection between the network and the Internet network," she says. "It's easy to talk about all this stuff as if it's a network, but there are many networks that have to be interconnected in order to really have full and robust communications." Of course, Cisco is also loading itself up with software and enhancing its consulting capabilities. The battle shifts into anot her gear when the big phone companies start using Internet technology. When will Lucent's biggest customers start making the huge investments required to build segments of their voice networks on the Net, a potential goldmine for Lucent? Russo plays this question cool. "I have tended to believe that we will start to see real [Internet protocol] rollouts during the course of 2000," she says, but those rollouts will probably come from smaller local phone companies and Internet service providers which need to get into the market as quickly as possible. "There's more work to be done," she says, before Internet programming can deliver not only voice traffic but features like call waiting and 800 numbers.
Cisco is trying to prove its mettle in telephony through its contract with Sprint and some of its recent acquisitions. Lucent, meanwhile, is selling gear to wireless and cable and traditional phone operators in much larger volume than Cisco. How does this battle play out? Russo stresses the importan ce of "knowing what competitors are up to." Consumers and investors can expect Russo and her colleagues to keep spending on a flurry of counterpunches for every move its rivals ma
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