INS' services focus attracts Lucent

Selling telecom equipment alone is just not good enough anymore. Instead, a budding market of professional services is expanding fast to meet increasing demands. That growing market prompted Lucent Technologies last week to merge with network consulting and software provider Integrated Network Services for about $3.7 billion in a stock transaction.

As part of the deal, which is expected to close before the end of the year, INS will receive 0.85 shares of Lucent stock for each INS share. The offering equals about $54 per INS share.

"This merger is further evidence that Lucent is continuing to reinvent itself for leadership by targeting the fastest growing segment of communications networking," said Pat Russo, executive vice president of strategic and corporate opportunities for Lucent. "There is no question that professional services and support for next generation networks is going forward." Lucent is betting that the convergence of networks, mixed with multiple vendors' equipment, will bring it more business as service providers' networks become more complex.

Lucent's acquisition comes on the heels of its other recent efforts to boost its professional services revenue. The company developed an internal services organization called NetCare, which provides network design, monitoring, integration and maintenance.

Under the new deal, INS will be enveloped by NetCare and should bring depth to network design and consulting capabilities. Also as part of the deal, INS President and CEO John Drew will head NetCare.

Despite INS' healthy list of clients, the thorn of Cisco Systems' involvement with the company may cause problems. Cisco owns a 6.7% stake in INS and a seat on INS' board of directors.

"We don't want any interruption of service to the customers - but it is realistic to expect a realignment with Cisco, and we certainly want to engage Cisco clients just as we have in the past," Drew said.

Having apparently sensed INS' defection to the Lucent camp, Cisco announced plans to strengthen its relationship with consulting firm KPMG around the same time as the Lucent announcement.

INS has stronger experience with IP than KPMG, which will propel Lucent even further ahead in the services space, said Curtis Price, program director for Stratecast Partners.

Ironically, NetCare counts MCI WorldCom, which suffered a frame relay network collapse last week, as one of its customers (see story on page 8). Adding insult to injury, the incident was partially blamed on upgrades to Lucent switches. "What a great opportunity that must have made for NetCare," Price said.