Ascend deal plugs Lucent ATM leaks

Blockbuster combination could spawn integrated voice, data network services.

By Tim Greene and David Rohde
Network World, 01/18/99

Murray Hill, N.J. - While the Lucent/Ascend merger last week came as no surprise, the $20 billion deal gives Lucent - the circuit switch king - additional packet and cell technology to satisfy the needs of new carriers looking to offer integrated voice, data and video services.

Without Ascend, Lucent didn't have enough IP and ATM products to entice leading-edge carriers touting IP-everything services, or to beat back the advances of Cisco, which is banging on the doors of Lucent's customers.

In announcing the merger, Lucent Chairman and CEO Richard McGinn and Ascend President and CEO Mory Ejabat said future carrier networks will support customer services over one unified backbone.

While Lucent has the optical backbone technologies that carriers want, the company lacks an ATM core switch that is as scalable and manageable as Ascend's CX 550. In fact, since last fall, Lucent has been reselling the CX 550.

"Lucent had a really big hole in its product line," says Liza Hendersen, director of consulting for TeleChoice, a Boston consultancy.

"Lucent had a piecemeal approach," agrees Matt Barzowskas, vice president of First Albany, a financial firm in Boston. "It had to make a big move, and Ascend has the broadest product range."

While the companies share a belief in ATM, they arrived at the common vision from different angles. Ascend grew up as a key player in dial-up Internet access hardware, but evolved into one of the crucial providers of ATM switches to carriers. Lucent was born of the Bell system and has a voice-centric heritage.

Lucent has added to its line over the years and will have some product overlap with Ascend, notably, the Lucent PortMaster 4 high-end access concentrator and the Ascend MAX TNT. "I would keep the TNT, which has a greater presence in ISP networks," says John Morency, an analyst with Renaissance Worldwide.

Another option may be to meld the MAX TNT with the PortMaster, says Frank Dzubeck, president of Communications Network Architects, a Washington, D.C. consulting firm. Lucent's boxes are higher capacity than Ascend's, "but the software doesn't compare a lick to what Ascend has," he says.

Neither company would comment on product plans.

Whither the enterprise?

While the Ascend deal improves Lucent's carrier pitch, observers say it does little on the enterprise front, particularly in the company's competition with Nortel Networks, which last year bought Bay Networks.

McGinn makes it clear that carrier networks are his first priority. "This move with Ascend clearly solidifies our position as the undeniable leader in communications networking for service providers," he says.

As for the enterprise, McGinn says, "We will, as well, be investing organically and as appropriate to further our enterprise business."

Company officials have repeatedly downplayed the idea that Lucent would buy a traditional router vendor because they see the business as relatively slow-growth and low-margin.

"Lucent can't compete in the cost-per-port world," Dzubeck says. "It has an overhead structure that would choke a horse."

Another factor in sidestepping the enterprise is, not surprisingly, Cisco. In Lucent's view, "fighting Cisco where it dominates is a losing proposition," says Christine Heckart, vice president of TeleChoice.

Lucent officials are quick to point out the company gains an entree to make enterprise data sales through its large installed base of PBX and call center customers, particularly in newer, high-speed markets that are up for grabs. For example, Lucent's LAN switching group in Concord, Mass., claims to have sold more than 125,000 ports of its Cajun P550 Gigabit Routing Switch, which has Layer 2 and Layer 3 switching capabilities.

But Lucent's main enterprise push is managed services, which the company offers through its NetCare service subsidiary, Dzubeck says. Doug Ruby, vice president of product marketing for Lucent's enterprise group, confirms that most data product sales include NetCare services.

Ironically, NetCare has sold a large number of routers and other gear from Bay under a 1995 partnership. But now those sales are beginning to transition to Lucent's Gigabit Ethernet and campus ATM products.

Lucent's enterprise sales account for some $8 billion of its roughly $30 billion in annual sales, but the bulk of that is from sales of PBXs, call centers and voice messaging systems. Ruby says LAN switching accounts for just more than $250 million per year in revenue.

The merger with Ascend is scheduled to close at mid-year, meaning an integrated service pitch from the merged company might come in the third quarter.