Big step for the Cisco kid

Cisco Systems emerged a big winner after last week's announcement of its alliance with SBC Communications, but analysts disagree whether Cisco will be a competitive vendor in established areas for incumbent carriers.

On the surface, the SBC agreement represents a breakthrough for Cisco, a mainstay vendor for many competitive carriers that often has been left out of incumbent carriers' loops. In addition to being named SBC's preferred provider for data networking equipment, Cisco earned plaudits for its switching equipment. Moreover, "This agreement marks the first time Cisco's equipment has been used in the core of SBC's network," said Larry Lang, Cisco's vice president of service provider marketing. "It's definitely a sign of a new SBC and Cisco is glad to be a part of it."

Combined with a most basic market reality - having an networking-vendor alternative to Alcatel should generate more favorable pricing for SBC - the ability to deliver such products would seem to make Cisco an ideal choice for carriers such as SBC.

"This certainly looks like a good first step for SBC becoming a Cisco-powered network," said Peter Meade, managing partner for TeleResearch. "This has to be a blow to Alcatel."

No argument there. "You never want to lose any market share, especially when you have 100%," said Jay Hilbert, Alcatel's vice president of telco sales. "But we knew, eventually, that SBC would want to diversify its supplier base."

But Cisco "has a long way to go" before it competes with public network stalwarts such as Alcatel, Nortel Networks and Lucent Technologies in the digital loop carrier and optical markets, said Ron Westfall, senior analyst for Current Analysis. He believes Cisco's DSL work in the Ameritech territory is a special circumstance, dictated by the fact that Ameritech had not aggressively pursued the DSL market when it merged with SBC last year.

"Ameritech can be viewed as a green field... but it's not going to parlay into `Uh, oh, incumbent carriers are going to kick out Alcatel any time soon,'" Westfall said.

A key reason for this is that incumbent carriers do not want to pay to retrain employees, said Claude Romans, director for access networks for RHK. "It was convenient for SBC to take Ameritech, which didn't have anything, and roll out something new."

This assertion is supported by SBC's repeated statements that the Cisco agreement does not displace any existing equipment or affect current vendor relationships, including those related to Project Pronto, in which Alcatel plays a key role.

"We're incredibly pleased with our relationship with SBC," Hilbert said. "We're going to move our product out into the field as fast as we can and let the games begin."

Tom McGrath, president of SBC DataComm, said he "would not speculate" on SBC's future choices to provide DSL equipment.

In fact, SBC's commitment to Cisco is unclear to many observers. Officials for both companies described the alliance as a "multibillion dollar deal" for a 21-month period, but financial details were not disclosed.

But even if the agreement with SBC is an expensive "tryout" of the network-equipment provider, it would represent a major victory for Cisco.

"An opportunity to get in a network as extensive as SBC is obviously a huge opportunity," Meade said. "It's a coup for Cisco."