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Cisco complacent on consolidation

But needs cellular buy

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Comment Cisco is taking a complacent line on the wave of consolidation affecting the telecoms equipment business.

The rash of mergers is driven by the shift to all-IP, goes the argument, and that is the area that Cisco dominates, so it will stand to gain some lucrative partnerships among the enlarged telecoms players.

CEO John Chambers is convinced his company has spotted the right trends again, as the Advanced Technologies unit formed three years ago to house next generation growth drivers starts to bear fruit. This unit's strategies point to a Cisco that will increasingly seek a collaborative, integrator role in the networking community, while taking on a new breed of competitors in areas like video delivery.

But to achieve all the goals that Chambers set out when he selected the technologies to drive future growth, the company needs to increase its expertise in cellular telephony urgently.

The Advanced Technologies unit houses wireless, digital video, optical networking, storage area networking and consumer/SME IP telephony. Although currently a minimal contributor to Cisco's bottom line, the division is expected to grow its revenues by 10 to 15 per cent a year up to 2012 and to reach $1bn by that stage.

"Getting trends right is important," Chambers said in a recent conference speech. "We made our investments three to five years ago when it wasn't obvious to others what the trends were going to be. I was concerned when, a couple of years ago we outlined our strategy only to find that nobody was following us. When nobody comes to join you, well, you have to wonder if you are the one that's missing something, but we weren't."

Some of the trends successfully spotted have been the digital home – where Cisco has acquired Linksys, Kiss and Scientific Atlanta, among others, to create a multimedia delivery platform – and the move of VoIP into the consumer space and on to wireless networks.

Need for cellular expertise

For a company whose fortunes were built on IP, these were not necessarily difficult to visualise. Where it is less clear that Cisco has its finger on the pulse is in the cellular networks.

Much of the telco business to be had in the coming years will focus on integrating cellular, broadband wireless and wireline networks and devices, migrating the whole combination eventually to all-IP and the IP Multimedia Subsystem.

Cisco has a pragmatic approach to IMS that indicates its ambition to dominate the integration software aspect of all-IP, not just the routers. If it can provide the glue in the multi-network IP world, it will happily work with equipment vendors rather than against them. Its own integration protocols, which are mappable to IMS, and its work with Siemens on WiMAX-3G hand-off, are examples of this important strategy. It also offers software on its edge routers to provide mobile phones with access to corporate networks.

But much of this depends on partnering with the cellular experts, and this is high risk, especially as they grow larger through their current consolidation.

A giant like Lucent-Alcatel or even Nokia Siemens has less need to tap into Cisco's resources and work with the IP giant, and greater incentive to take the integration high ground for itself. All these companies, especially as they see the enterprise and telco markets converging and Cisco creeping into their strongholds on the coat tails of IP, will regard Cisco's proffered cooperative alliances as Trojan horses.

In this situation, Cisco needs to fill its cellular gaps inhouse or risk being over-dependent on semi-hostile partners. Chambers has consistently fought against the idea of a major acquisition for Cisco, citing company integration difficulties, even though the ailing but technology-rich Nortel appears a good fit. But we should expect some smaller acquisitions this year, to bolster the mobile technology side of Advanced Technologies.

Copyright © 2006, Wireless Watch

Wireless Watch is published by Rethink Research, a London-based IT publishing and consulting firm. This weekly newsletter delivers in-depth analysis and market research of mobile and wireless for business. Subscription details are here.

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