GREAT EXPECTATIONS

When Tellabs announced its acquisition of AFC and Lucent said it was purchasing Telica, both buyers gave good reasons why they need to acquire these companies to pursue next-generation network opportunities. If the reasoning sounded familiar, that's because it's the same logic that drove a spate of vendor M&A activity during the late 1990s. Back then, acquiring companies had their sights set on optical and IP evolutions that were going to change the nature of networks. That evolution was stalled by economic decline. The big vendors spent those years dumping, selling and spinning-off the companies and product lines they acquired earlier. Now, companies such as Tellabs and Lucent think the optical and IP evolutions are beginning to pick up steam again, and their acquiring ways have been renewed. However, many people in the industry are acknowledging what should have been understood years ago — that these evolutions will live up to the term we use to describe them. They will “evolve” gradually through incremental network migrations, rather than full-scale upgrades. Acquiring companies would be wise to remember that when looking at the bottom-line returns their acquisitions produce in terms of actual new business. They may be modest for the time being, and it would be a mistake to forecast otherwise. That makes it that much more important for the new owners of AFC and Telica to be responsive to the existing customers of these companies. Otherwise, they'll be in danger of losing some of the business they already have and could find themselves cleaning house once again.