CONSOLIDATION OFFERS MIXED RESULTS FOR VENDORS

Consolidation in the IOC market may not necessarily be a bad thing for the vendors that have relied on it for their core revenue. That’s particularly true among vendors in the access and switch sectors, where IOCs typically spend the bulk of their capital expenses.

“When there’s consolidation, there’s a desire to usually go after new business,” said Jody Bennett, vice president of marketing with Taqua, noting that very often companies with dissimilar switches are combined. “When they become part of a larger network, it adds to the level of complexity in terms of putting the older equipment together.”

Distributors, who are trying to expand beyond the “pick-pack-and-ship” business, also see opportunity to offer additional services. “One of the things we’re seeing IOCs do is reduce expenses,” said Ed Ludtke, national product manager for Graybar. “One of the first things they seem to cut is training for engineers. Our [training] folks when they go around now are getting a little of a better audience.”

Though affected by the down economy, capital expenses for IOCs have remained relatively steady compared to the massive ups and downs experienced by the RBOCs. Because of that constancy, IOCs have become so popular as targets over the last couple of years that virtually every vendor now claims to have a “rural” strategy. Nortel, which for years dominated the class-five switch market among IOCs with its DMS-10 product line, recently rededicated itself to the market with a softswitch strategy geared to smaller carriers. “There are a lot of similarities between [our softswitch] and the DMS-10,” said Ron Kunkel, product marketing manager for Nortel’s wireline networks unit.

Ultimately, however, most vendors don’t see potential consolidation as a major lift for capital spending. Instead, they see mergers as a reason for carriers to simply shift spending into new areas.

“If two carriers band together, they’re still going to need invest in their infrastructure,” said Kevin Walsh, vice president of marketing for Calix. “It doesn’t really change the calculus on that front.”