Expecting the expected

You didn't really expect it, but you weren't surprised to hear it. Northern Telecom is purchasing Bay Networks and plans to move forward in the area of Internet protocol-integrated networks. How far forward remains to be seen.

The rumor mill has had Bay on the block for some time. Unfortunately, the two CEOs, Nortel's John Roth and Bay's Dave House, didn't articulate how the companies might integrate their products or technologies, or on what part of the network they plan to focus initially.

Nortel has brand recognition and strength in the telecommunications community that many forward-thinking data network vendors covet. Presumably, Nortel wants Bay's IP expertise, strong distribution channels and entrance to the desktop.

Bay resulted from the merger of SynOptics and Wellfleet, but the company faltered, giving competitors a stronghold in the market. In 1996, House stepped in and, despite intentions of prevailing alone, agreed to go under the Nortel umbrella. House dismisses the charge that he was looking for a buyer.

Given Bay's past instability, the merger bodes well for the company. The Nortel name might win back some of the market, while allowing Bay to grow into the IP segment.

The IP-integrated market is where the Nortel/Bay conglomerate hopes to lead. Claiming to carve out a "new category" of company that doesn't fit the traditional telco or data networking monikers, Nortel will establish an end-to-end IP-integrated network, House said, adding, "This company is an IP-integrated network company, and it's the first of its kind."

But is it? Some claim that Lucent already reigns king in this "new category." Lucent and Nortel have been buying up companies to expand their respective knowledge bases. Lucent paid $1 billion for Yurie and snapped up Livingston and Prominet. Nortel reeled in Bay, along with a spate of other companies including Broadband Networks, Aptis Communications and Entrust Technologies. And don't overlook its 20% investment in Avici Systems.

All this consolidation signals that telecom companies are gearing up for the data-laden networks of the future. To truly compete in this converging market segment, Nortel, Lucent and others will continue to swallow up companies, technologies and market share. Acquiring technology is a lot cheaper than building it in-house, and in this competitive marketplace, it is the only way to survive.