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Cisco, HP team up on telecom
mercurycenter.com
Hewlett-Packard Co. and Cisco Systems Inc. are teaming up in an
effort to become major players in the $1 trillion-a-year
telecommunications market, designing integrated products to better
handle data and voice communications over the same wires.
The two companies plan to announce Tuesday that Cisco, of San
Jose, will offer the leading products for routing, managing and
controlling digital data and voice communications, while Palo
Alto-based HP will offer a broad array of software, hardware and
services that integrate operations for traditional telephone companies
and Internet service providers. In addition, HP and Cisco will jointly
market the products, sources said.
While tough technical problems remain, the move is an extension of
agreements that the two companies have had since 1997 for an
expanded partnership that will see the two companies working much
more closely together, said people familiar with the arrangement.
''When Cisco enters a strategic alliance it means very specifically that the agreement will mean $1 billion in new business within three years that the companies split,'' one source said.
During the past 18 months, HP has focused much of its efforts on
becoming the leading provider of Internet-related products and
services to ISPs and corporations, although that market has been
dominated by long-term rival Sun Microsystems Inc., of Palo Alto.
The ability to offer ISPs a new way to make money through
expanded capabilities should give HP a chance to make headway,
analysts suggested.
''HP has been looking for some kind of entry into the ISP market for
awhile,'' said Jim Balderston, a senior industry analyst with the market research firm Zona Research. ''If HP can offer them a solution that lets them move into a brand new market quickly and easily, ISPs will certainly give them a look.''
Longer term, however, the strategic alliance could end up benefiting Cisco even more.
Although Cisco, at $9 billion a year in revenues, is the leader in
providing products that manage data communications for large
corporations, the rush to integrate voice and data communications is
bringing the company into direct contact with larger, more established
telecommunications equipment rivals such as Lucent Technologies, of
Murray Hill, N.J., and Nortel Networks.
Both of those companies have already made it clear they intend to
move into the market for integrated voice and data as well, most
strongly when the Canada-based Northern Telecom purchased Santa
Clara-based Bay Networks earlier this year for more than $9 billion,
becoming Nortel Networks in the process. Lucent closed 1997 with
sales of $27 billion, while Nortel Networks had combined revenues
of $18 billion.
Although Cisco has already started offering products designed to help
traditional telephone companies handle the growing demand for data
traffic, its strategic alliance with HP gives it access to a wide array of telecommunications products that might have strained Cisco's
resources if it had to develop them by themselves, sources said.
Besides HP's full line of computers, the Palo Alto-based company
also markets equipment such as fiber optic wiring, network testing
equipment, and the infinitely precise clocks used to synchronize
communications worldwide.
Most important, the strategic alliance between the two companies will
give Cisco greater access to HP's suite of software, such as OpenCall
IN, which will allow service providers to integrate the two separate
networks that now manage voice and data communications.
Given that the move toward Internet-based telephony will take at
least 10 years, according to industry estimates, the ability to match
existing analog-based communications with digital-based Internet
telephony service will be essential, analysts said.
''There's people out there still using rotary phones,'' said Richard
Doherty, founder of the market research firm Envisioneering Inc. ''If
people can only makes calls to people connected to certain types of
phones, that's going to slow adoption way down.''
But there seems to be little argument that eventually the industry will transmit telephone calls the same way they handle Internet-based data now. The battle is over who will do the best job in merging voice and data communications into a single, seamless solution.
''This is already Cisco's strength,'' said Todd Chipman, a research
director for Giga Information Group. ''This alliance with HP gives
them a partner that already sells to the (telecom companies) with a
wide product portfolio.''
But while Internet-based telephony is the wave of the future, right
now voice communications are based on an entirely different standard
known as Public Switched Telephone Network, which provides a
dedicated direct link for each phone call. While it's more limited in
terms of the amount of traffic it can handle, and costs more, it's much more reliable.
IP telephony works by breaking the information into small packets,
sending them over the network the most efficient way possible, and
then reassembling them at the destination.
While that method has proven extremely reliable for data, voices can
be delayed by seconds in a conversation, or suffer a loss of quality as packets reassemble at a different rate than they departed.
''That's still a problem (for Cisco),'' Chipman said, ''although they
have made strides in correcting it.''
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