SBC Communications Inc. (www.sbc.com) and Cisco Systems Inc. (www.cisco.com) entered into a strategic alliance in which SBC will deploy Cisco networking equipment throughout its territory.
SBC and Cisco do not put a price tag on the deal, though their officials describe it as a "multi-billion dollar" agreement. The Wall Street Journal (www.wsj.com) reports today that SBC will buy $1 billion worth of Cisco equipment over the next two years.
Cisco thus becomes SBC's preferred provider of data networking equipment for DSL, enterprise VPN, virtual point of presence-dial access service, broadband capabilities gateways and ATM services.
SBC's network serves 60 million access lines in 36 million customer locations nationwide.
By selecting Cisco as a preferred provider, SBC will face "very little systems interoperability challenges," says Tom McGrath, president of SBC Datacom. "This equals easier network management for us and reliable services. We'll use this alliance to bring solutions to customers unmatched by anyone in the industry."
SBC is already a leading reseller of Cisco hardware and software. This deal, company officials say, allows SBC to deploy an IP layer over its footprint and beyond. The company is under a federal mandate to offer CLEC service in 30 markets outside its footprint as a condition of approval of its merger with Ameritech (www.ameritech.com). SBC's footprint consists of its Pacific Bell territory in California and Nevada, its five-state Southwestern Bell Telephone territory in the southwest, and the five-state Ameritech territory in the Midwest.
SBC projects its data revenues will double over the next three years, and it expects to extend the benefits of the alliance out of region through partners including Williams Communications Group Inc.(www.wilcom.com), McGrath says.
McGrath says the Cisco portfolio will be "additive" and complementary to SBC's $6 billion Project Pronto broadband infrastructure buildout announced last fall. Project Pronto is designed to move all voice and data services to a single packet-switched backbone network and to reach 80 percent of SBC's customers with DSL and other broadband access within six years. Whereas DSL systems from Alcatel USA Inc. (www.alcatel.com) already dominate SBC's rollouts in Southwestern Bell and Pacific Bell regions, Cisco systems will dominate future DSL deployments in the Ameritech region, McGrath says.
Jeffrey Kagan, an independent telecom analyst based in Atlanta, says the Cisco/SBC deal illustrates a trend: companies focusing on their core competencies and forming alliances to fill in the gaps.
"The nation's phone companies are repositioning themselves to compete in a data world and this deal with Cisco gives SBC the kind of clout and credibility it might have taken years to develop on their own," Kagan says. "Cisco is a leader in data communications, but has been trying to beef up their presence in the telecom space. This deal with SBC will give them access to SBC's customers and position in the telecom marketplace."
