The year 1998 saw the beginning of the end for the two distinct worlds of datacom and telecom. In 1999, enterprise networking moves to a voice/data-blended place.
The industry is inundated with the buzz around network convergence — those future network infrastructures designed to support voice, data and eventually video. But expect to hear a lot more talk and see a plethora of network convergence products. Out with the old and in with the newest breed of routers, switches, PBXs and other communications equipment, which will incorporate voice and data transmission functions. The transition from two polarized markets blended into one begins in earnest this year.
The fallout of this evolution sees the end of two sets of vendors who either sold data gear or peddled voice equipment. Forget the “Big Four” of Cisco, 3Com, Bay and Cabletron. The real power in networking is about to be shifted to Cisco and the NELAS (Nortel, Ericsson, Lucent, Alcatel and Siemens) pack who’ll be looking to do it all. These are a new breed of companies who will build and supply the hardware behind these new and/or retrofitted existing networks with both voice and data transmission capability.
So what’s to become of the Big Four and how will convergence impact them? Let’s speculate.
Leading the pack
Data networking’s leader just keeps rolling along, but the ride in 1999 may be a bit bumpier. Cisco in 1998 invested a whole lot of effort and resources to get the jump on competitors in the emerging world of voice/data integration. The strategy worked and, coming into 1999, Cisco stands at the top of the heap among perceived leaders in network convergence.
But the game is early and things could quickly change this year. It’s still not clear what approach will win. Will voice travel along the data path or vice versa, and by extension, which vendors will emerge as the major suppliers?
Cisco’s Manifest Destiny, as it were, is that networking’s future is voice, data and ultimately video traversing a data infrastructure path. It has bet the farm that this assertion is a correct one. From mighty Cisco’s perspective, it rules the data landscape and if the future unfolds as the company expects, then it’ll eventually become the leader in provisioning voice equipment, too.
But if the networked world doesn’t embrace convergence along a data route or if blended voice and data falls flat as a concept, then there’s a whole lot of trouble ahead and it may be too late to turn back.
Another interesting point of note is Cisco’s current network industry dominance. The company has achieved remarkable growth and profitability for a number of years and fiscal 1999 looks like another unabashed success. But when will the bubble burst? How long can Cisco continue along this golden path, given the reshaping that’s taking place in the communications industry?
NELAS, the traditional voice companies that have huge resources and installed customer bases, are breathing down Cisco’s neck and are a great deal more ominous than the likes of 3Com, Bay and Cabletron ever were. Among this group, Cisco is an upstart underdog.
Certainly the financial viability of the company absolutely depends on maintaining skyrocketing growth and profitability. A US$8.5 million company that is market valued at more than US$100 million can’t afford to make minor mistakes, let alone have anything close to a poor financial quarter or the slightest threat to its perceived dominance. How might either of the latter two scenarios impact this seeming house of cards? Cisco can’t risk finding out and will need to stay even further ahead of the competition in order to fend off a new and much more powerful set of foes.
Losing Ground
In the new networking age of combined datacom and telecom, both 3Com and Cabletron are stumbling, although 3Com’s recently announced partnership with Siemens to jointly develop LAN telephony and multimedia products is a promising network convergence partnership.
3Com remains an important data networking hardware provider, but risks moving further down the food chain of major equipment suppliers if the company fails to transform itself into a voice and data networking equipment provider. 3Com enters the convergence market at a disadvantage since it has never been much of a factor in the enterprise or carrier space.
Competing against Cisco and the NELAS makes 3Com, at least on the surface, an even more minor player in the enterprise, although its relationship with Siemens is something of an ace in the hole. Siemens and 3Com represent a dynamic duo that, together, appear to have the requisite pieces for a company that could dominate the new industry of networking rallied around combined voice, data and someday video. A merger or acquisition by either looks like a natural fit. Failing to make the transition to a network convergence company would probably see 3Com taking an even more entrenched position at the desktop around its NIC, remote access and enormously successful Palm Pilot products.
After yet another poor quarter, Cabletron is floundering and in desperate need of an injection of new life. Things can’t go on in 1999 the way they did in 1998. This past year was a nightmare of uncertainty for the once brazen “Bad Boys of Networking.”
The Digital Equipment Corp. Network Products acquisition was virtually a bust and didn’t provide anything close to the anticipated channel strength expected. Both former Cabletron CEO Don Reed and Digital Network Products Group president Giulio Gianturco flopped and were eventually ousted after failing to turn around the company’s fortunes.
There’s a sense that recent history shows Cabletron may be out of touch with the times. It was slow to embrace gigabit Ethernet and routing. While others such as Cisco, Bay and 3Com are working furiously to turn themselves into companies that can provision for future voice and data integration, Cabletron appears tentative, not entirely convinced that data and voice will meet as one.
Rumour has it that before Nortel purchased Bay Networks last year, it pondered a Cabletron buy. According to Cabletron, however, the company wasn’t interested in being bought — at least not at the price being offered. If such stories are true, then Cabletron may rue the day that opportunity came knocking and wasn’t invited in.
An acquisition in 1999 would appear to be Cabletron’s salvation, even though the company may not be as attractive (or as expensive) as it was a year ago. The company would provide a nice fit for a voice specialist looking to gain solid data smarts. Cabletron’s technology and equipment are renowned. But time is working against Cabletron, considering the declining state of the company. The sooner the better for a Cabletron suitor to come along at this stage.
Closing Fast
While it’s taking a bit of time to digest all of the pieces, Nortel looks poised and ready to not only define, but to lead the networking industry around the integration of voice and data. This should be the networking company to watch in 1999.
Thanks to its Bay Networks acquisition, Nortel stands to move way ahead of the pack with expected announcements of new voice products, based on IP technology, plus other assorted gear designed for the building of voice/data converged network infrastructures. Word is that Nortel developers are integrating Bay’s enterprise management tools with its own carrier administration technology, providing a smoother link between IT operations and outside carrier services.
Nortel in March will also announce an important strategy around services, looking to provide greater value-add to those services currently offered by key partners, and significantly beef up the certification expertise of those who support Nortel/Bay network equipment.
All of the parts are there and only poor execution on the company’s defined strategy of being both a telecom and datacom player stands in the way of success.
Dan McLean is research manager, network support and integration services, for IDC Canada Ltd. in Toronto.
