Convergence rings Lucent's bell
Billion-dollar 'startup' reaches out past telecom gear to enter data networking. Cisco's unconcerned, but IS is intrigued
By Stephen Lawton
When Lucent Technologies Inc. was formed in 1996 from the networking, telephony, and research divisions of AT&T, it began life as one of the world's top 50 grossing companies. Today this $27 billion "startup" is fighting for market share on two fronts, keeping one eye on its lucrative telecommunications equipment business while the other watches data-networking hotshots such as Cisco Systems Inc.
The question isn't whether Murray Hill, N.J.-based Lucent, four times the size of San Jose, Calif.-based Cisco Systems Inc., can crush the networking giant under its collective mass. Rather, the question is whether Lucent can marshal its forces and take Cisco on head-to-head for business from corporate IS managers. That arena represents a battleground on which the products, sales cycles, and marketing strategies vary significantly from the traditional market of telephony service providers.
Only now is Lucent starting to deliver on its enterprise and carrier-class ATM offerings unveiled six months ago. Its gigabit-Ethernet acquisition, Prominet Corp., has been shipping products for several months but that market is best described as embryonic. For a company the size of Lucent, enterprise networking revenues are Lilliputian compared to service-provider revenues.
Don Listwin, senior vice president of Cisco's service-provider business line, said he doesn't consider Lucent a first-line competitor, an honor he reserves for two Canadian companies: ATM vendor Newbridge Networks Corp. of Kanata, Ontario, and Northern Telecom (Nortel) of Brampton, Ontario. However, he expects Lucent to become a more noteworthy competitor as voice and data networks merge and Lucent can compete based more on its traditional strengths.
In fact, Cisco isn't willing to shoot both barrels at Lucent, said Listwin. He said that the companies are discussing a strategic partnership for Lucent's voice products. Similar discussions, he said, are also being held with Nortel, Alcatel Telecom and NEC Corp.
Lucent's biggest challenge in the enterprise networking arena is mind share, said Bill O'Shea, president of Lucent's Network Products Group. He acknowledged that Lucent often isn't on the radar scope for enterprise ATM switches, although it does well in the service-provider market.
O'Shea said the company's future success in the enterprise market is tied to its service-provider business. "Today," he said, "large companies have lots of people twiddling around with modem pools. Calls should be terminated at the service providers, who would just send streams of packets to the companies." As this service-provider market grows, he expects to see corresponding growth in demand for Lucent products from the enterprise market.
John Morency, a principal at Renaissance Worldwide Inc., a technology consultancy in Newton, Mass., said that two key components that are missing from Lucent's product suite are an integrated software architecture that defines how multiservice systems can be implemented and managed, and a software-management platform similar to 3Com Corp.'s TranscendWare or Cisco's Resource Manager.
O'Shea said that such software is in the works and should be available laterthis year.
Ascend Communications Inc.'s Vice President of Marketing Bob Macklin also said Lucent is two years to three years away from being one of the major players in the ATM market. Macklin said that as service providers begin to gain more revenue from data rather than voice, hardware-based suppliers will gain a greater share of the market. "We'll either become bigger competitors or closer partners, he said."
The Nortel challenge
Unlike Lucent, Nortel's Enterprise Data Networks business group, bolstered by its Simi Valley, Calif.-based Micom remote-access operation, already has an established position in the voice-over-IP market.
"[Lucent] has a good position in the carrier-class ATM [market], but in the enterprise, that's a different picture," said F. William Conner, president of the Nortel business group. Conner said that Nortel already earns close to $785 million in enterprise revenues.
Both Lucent and Nortel plan to use their partners to address LAN workgroups and departments for basic infrastructure products such as hubs and switches. For this segment, Nortel resells Cabletron Systems Inc. products, whereas Lucent partners with Bay Networks Inc.
The prevailing opinion in the telecommunications and data-networking markets is that the convergence of voice and data isn't a question of "if," but of "when."
Lucent Chairman, President, and CEO Richard McGinn believes that within the next "several years"--he didn't say exactly how many--the vast majority of WANs and LANs will be converged.
MCI Corp.'s Vint Cerf, senior vice president of Internet architecture and engineering, said that within 10 years, 90 percent of the information going over the carriers' long distance lines will be packet data, including packetized voice.
Kanematsu USA Inc., the New York-based division of one of Japan's largest trading companies, is a firm believer in convergence. Last year the company began using Lucent's Internet Telephony Server and now has cut its long-distance costs by some 60 percent to 70 percent, according to George Emmett, assistant manager of communications in the IS department at Kanematsu.
But those gains have not translated into convergence on the LAN. Emmett said that Kanematsu has no immediate plans to implement Lucent's LAN technology, nor does he believe that Lucent's strategy will affect his LAN plans.
Joe Gallo, vice president and CTO of Communications Beyond Boundaries Corp., an integrator in Oakland, Calif., has helped a number of clients who had Lucent bid on their data networking and voice-over-IP needs.
Gallo said Lucent sells its offerings as "the only game in town," a marketing approach which implies to potential customers that other vendors' products might not work with the Lucent products. That is not the case because Lucent's offerings are standards-based, he said.
Despite the company's sales approach, which Gallo said can irritate some customers, the "products are stable from a reliability standpoint. Everyone I know who has Lucent products likes them."
One reason for Lucent's lack of recognition among IS managers, according to Tom Nolle, a principal at Cimi Corp., a consultancy in Voorhees, N.J., is that the company markets its products to them the same way it does to telecommunications managers. He characterized that approach as "too slow [and] too conservative. Lucent's No. 1 priority must be mind share," he said.
Two areas in which Lucent products are lacking are management tools and the interface, Gallo said. "Lucent needs to add class-of-service tools," he said, as well as open its user interface so that users can customize it more efficiently.
Gallo finds the so-called "coming" convergence of voice and data amusing. He noted that digital voice has been transmitted over long-distance lines since the mid-1960s when Lucent was a part of AT&T. The change, he said, is that today "MIS is getting into the telephony business."
And, in Lucent's case, vice versa.
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