Cisco calls on IP technology

Cisco defined its ambitions in the telecoms equipment space more clearly at the end of last month when it announced a deal with systems giant NEC to jointly market internet-based phone technology.

Although few of the world's carriers or their corporate customers currently use such technology, preferring mostly to stick with old-school equipment from the market dominant duo of Lucent and Nortel, Cisco has been trying for some time to get ahead in what it believes will be the next generation of phone technology.

The supplier claims that web-based telecoms gear is already cheaper than traditional alternatives, but it now believes that integrating its new Avvid range of voice equipment with NEC's software will result in a compelling offering for potential customers. The two companies also plan to jointly develop new products, with NEC also set to assume additional customer service responsibilities.

In a separate move, Cisco has also outlined plans to internally develop technology that can send web traffic long distance over fibre optic links. The vendor's tardiness in entering the long distance optical network market has been seen by analysts as a chink in its otherwise nigh on impenetrable armour, especially as Nortel is well ahead in the sector, following its recent acquisition of startups such as Corvis and Otera.

The route ahead
But as it focuses on these new markets, Cisco has found that it is losing some control over the router market it has dominated so completely for years.

At the high end of this sector, sales of Cisco's newish GSR 12000 router to internet service providers (ISPs) and telcos have been growing. But its sales are not growing as fast as Juniper's, which has grabbed nearly 23 per cent of the market in the last two years. And Juniper is now trying to extend its reach into Cisco's traditional heartland by coming out with its new M5 and M10 routers.

Cisco achieved its position in the router market by being able to deliver products that supported every possible combination of protocols and interfaces back when there was a general lack of standardisation. But the industry has changed since then, and thanks to protocols such as IP, this capability is no longer special.

Customers also have new expectations. For example, ISPs want to be able to turn on functionality such as IP filtering without losing system performance, and Juniper's products have proved well up to such tasks. The density of Juniper's routers mean they have smaller footprints, which is also popular with buyers.

But Juniper is not alone in taking a little of the gloss from Cisco's strong market position. Network software maker Ironbridge Networks has also just launched a high-speed network router, which it claims provides significantly better performance than similar technology built by Cisco, at a lower cost.

It is not the only startup trying to take a slice of the high-speed router market, however, with companies such as Avici and Pluris also bringing similar products to market.

Evolving markets
The success of Juniper, and the confidence of others like it, shows how markets can change to permit the entry of new suppliers with new technology. While there is nothing wrong with Cisco and its product set, nor any indication that it is really hurting yet, its move into optical networks should be judged as a defensive one, and may well follow on from the realisation that it can't dominate the router space for ever.

Certainly investors still regard Cisco as king of the hill. Readers of US business magazine Fortune have just voted it as number two in its annual list of most admired companies worldwide behind General Electric, which headed the poll for the third year in a row. Microsoft slid to third place and Intel scored fourth, with Sony in sixth position, followed by Dell in seventh and Nokia in eighth. This means that technology companies took six of the top 10 slots.

One analyst said the poll was significant because: "It is the emphasis on how much companies are capable of looking forward. In a year when old economy companies have not seen their share price perform, those that have managed to weather both the old and new economy storms will flourish."

But Cisco also displaced Microsoft in a more significant contest this year, emerging in March as the most valuable company in the world with a market value of $555.4bn compared with Microsoft's $541.6bn. This would appear to indicate that, so far, Cisco has successfully straddled both worlds. It is a major manufacturer of tried and tested networking hardware, and also the power behind the internet infrastructure throne that will drive tomorrow's business.

And it is now attempting to control the telecoms infrastructure, which is a whole new ball game. But Nortel and Lucent must be well aware that they stand right in the path of these plans ...