Which of the major telecom equipment players is most likely to benefit from ATT acquisition of TCI?
The following article from Broadband News indicates that Nortel has a significant lead in cable technology and will therefore, benefit more than LU or CSCO.
Weekly Edition for June 22, 1998:
NORTEL'S $7.6B PURCHASE
OF BAY SHOWS LURE OF
IP-NET SOLUTIONS
By FRED DAWSON
Nortel last week responded to surging demand for
carrier-class IP-networking (Internet-protocol) solutions by
agreeing to purchase Bay Networks Inc.
This marks the biggest step yet taken in this direction by a
major telecommunications-system supplier.
Along with providing Nortel with a pool of expertise to use in
quickly driving new products to market for telcos, the move
puts the muscle of a $15 billion telecommunications supplier
behind Bay's efforts to expand its data-modem business in
cable.
"The union with Nortel greatly expands our opportunities to
supply system solutions to the cable industry as it
continues to evolve," said Karl May, vice president and
general manager of broadband technology at Bay.
Nortel was not alone in finding an ally to support the
development of integrated router/switches and the supporting
software systems that networks like the one that Sprint
Corp. announced two weeks ago will require.
Other top telecommunications vendors have announced
alliances with data-communications firms:
Siemens AG aligned with 3Com Corp. to develop
central-office switches with IP-voice gateways built in.
Ericsson Inc. took a significant stake in start-up Mariposa
Technology Inc. to incorporate that company's
intelligent-voice/data-access solutions over ATM
(asynchronous transfer mode) into Ericsson's core products.
Alcatel Telecom Inc. allied with Cisco Systems Inc. to
become the first telecommunications supplier to offer gear
supporting Cisco's version of the emerging IP-over-ATM
standard known as MPLS (multiprotocol layer switching).
While all of those companies are playing to different
strengths in these alliances, the primary goal in each case
is to provide a bridge between traditional switching and the
IP domain. That way, carriers can begin adding voice to the
data-transport side of their networks, eventually eliminating
circuit-switched voice altogether.
But none of these deals is as closely tied to cable's
advanced-networking requirements as the Nortel/Bay
merger.
"We knew that we'd have to partner with a company like
Nortel to provide what our customers require as the service
requirements move from high-speed Internet access to much
more complex uses of IP technology," May said.
Even before the two companies generate new products, the
combination will allow Bay to compete for
systems-integration business, extending beyond modem
and headend gear, that Bay would not have been able to
compete for on its own, he added.
May maintained that synergies were possible because of the
"tremendous overlap" between the two companies. For
example, he noted, Cox Communications Inc. is deploying
Nortel switches and Bay modems in some markets, and it is
also using the voice-over-cable technology supplied by Arris
Interactive, the joint venture between Nortel and Antec Corp.
Rather than seeing the proprietary Arris system as a
competitor to the type of IP-voice products that Bay might
generate for cable, the companies viewed their respective
technologies as complementary, with long-term potential for
integration into next-generation systems, May said.
Although cable is moving in the direction of using
voice-over-IP on a wide scale, he added, IP telephony still
falls short of the performance standards that have been set
by today's circuit-switched POTS (plain old telephone
service).
IP falls short on both quality and on such issues as
back-office management and billing support and the ability to
exploit the capabilities of intelligent-network technology,
such as call forwarding, caller ID, 800-number service and
much more.
"These are the areas of expertise that Nortel adds, which
gives us the ability to develop carrier-class
IP-telecommunications solutions for cable, as well as for
other types of customers," May said.
Moreover, he noted, Nortel brings its position as a
market-leader in fiber-network systems to the table, opening
new opportunities for the two companies to develop
IP-over-fiber solutions that are suited to the evolving
architectures of cable-data networks.
Bay is looking at approaches to expanding the functionality
of layer 3 IP routing in optical networks that would go beyond
other new approaches to using wave-division multiplexing to
carry data traffic, such as IP over SONET (synchronous
optical network) and IP over ATM without SONET, May said.
While declining to discuss details, he acknowledged that
this approach has special appeal to the cable industry.
Layer 3 control over the optical layers would considerably
reduce cable's bandwidth overhead and the hardware costs
of using either SONET or ATM technology.
Nortel's costly acquisition of Bay came in a stock transfer
valued at $7.68 billion, representing a 14 percent premium
over Bay's public-market value when the deal was
announced.
It reflects a conviction that the market will require
carrier-class IP solutions on a much more vast scale and
much sooner than once seemed likely, said Klaus
Buechner, senior vice president of corporate strategy at
Nortel.
"Our view is that IP will dominate not only Internet and
private data-networking solutions, but all network
communications," Buechner said.
Buechner declined to comment on Wall Street concerns over
the amount that Nortel is paying for Bay, which were
reflected in a 15 percent overnight plunge in Nortel's stock
price after the announcement last Monday. But he stressed
the value to Nortel that comes with having the ability to
respond to market developments in the enterprise arena
served by Bay, where innovations defining the evolutionary
path for IP tend to occur.
"The routing world is now dominated by Cisco, which, to put
it diplomatically, uses code that sometimes has
inconsistencies with the standards used in IP networks,"
Buechner said. "Bay has the expertise to help us work
around those inconsistencies to supply more reliable
products that fit the needs of large carriers."
Ericsson -- which partnered with Bay in advance of the Nortel
announcement to develop an integrated ATM/IP solution
using MPLS technology, which is now in production -- chose
Mariposa because it offers technology that condenses ATM
switching and backbone-router technology into compact,
low-cost units that large enterprises can use to integrate
voice and data traffic before sending it out over external
networks.
"We're not going inside the enterprise space, but we're
improving our position at the edge," said Anders Igel,
executive vice president and head of Ericsson's Business
Area Infocom Systems unit. |
