Lucent Technologies’ emerging role as an equipment and service provider to the cable industry, along with its growing technical contributions through its association with CableLabs, are helping to drive the company deeper into cable’s neighborhood.
The well-heeled Bell Labs cousin is getting serious about its cable business, evidenced by a 1999 flurry of key acquisitions, strategic alliances and some internal restructuring to better compete in the lucrative cable-morphing-into-multiple services industry.
In the past nine months, Lucent has spent $2 billion to acquire Kenan Systems Corp., a billing and customer care software business; Nexabit Networks, a switching and routing equipment manufacturer; Xedia Corp., a developer of Internet access routers; and several software and fiber optics supply companies. It also completed a $20 billion merger with Ascend Communications, a Wide Area Network (WAN) equipment provider, and a $3.7 billion merger with International Network Services (INS), an independent consulting provider.
Add to the mergers and acquisitions Lucent’s recent agreement with Motorola to develop and market full-featured telephony-over-IP (Internet Protocol) and high-speed data solutions to cable operators, and its $250 million contract to supply MediaOne Group with communications systems and software, and cable is quickly seeing a potentially valuable player joining its ranks.
“We’ve been involved with the cable industry indirectly for years, and have helped companies like Antec drive fiber deeper into networks. When you pull up the covers, we’ve been around for a number of years, with lots of patents. That is the genesis of our entry into cable,” says Harrison Miles Jr., director of technical marketing and communications for Lucent Technologies.
Now, Miles believes, Lucent is positioned to offer the converging cable industry more products and services, including its CableConnect Solutions, which consist of the PathStar Access Server, 7R/E Packet Solutions, Motorola’s cable modems, Kenan Systems’ billing and customer care software and Lucent Net Care.
CableConnect is designed to offer cable operators integrated voice and data, first-line telephony, broadband-bundled services and fully compatible, scalable networks. Lucent’s NetCare Services address business planning and marketing services, network planning and design, billing, customer care, training and other elements of an end-to-end solution. Those two services, Miles insists, are leading Lucent deeper into the cable industry.
“Our focus is Cable Connect. That is our service mark for point of entry into cable,” Miles says. Telephony and key strategic alliances such as Kenan and Motorola are also in Lucent’s cable mix, he adds. “As operators raise the bar for services like telephony, we need those strategic alliances to leverage an operator’s knowledge of its outside plant, and how to monitor voice and data.” One of the alliances, albeit in the early stages, is with Comcast, an MSO (Multiple System Operator) with aggressive plans for IP telephony. “We’re looking at IP telephony and fully intend to have it on our books next year,” says Steve Craddock, vice president of new media development for Comcast. “We don’t intend to sit around and wait for everyone else to figure out how this works. There’s a window of opportunity for us.”
Whether or not that window includes Lucent equipment will probably be determined after Comcast’s in-progress trial of Lucent’s PathStar system at its Union, N.J. system. PathStar is Lucent’s access server which allows for rich telephony features and high-speed Internet access.
The trial is testing certain features such as troubleshooting, back office support and other disciplines through Lucent’s PathStar system, Craddock says. “The trial is on right now, and so far so good. The quality is superior, but the system must be packet-compliant, and Lucent understands that. The question is how do we make calls disparately through the network. Because by year-end 2000, we want to deploy IP telephony commercially, and by year-end 1999, we want to be PacketCable 1.0 compliant. We want to ensure that whatever system we use will support these services.”
A second trial will be conducted at Comcast’s 60,000-subscriber Willow Grove, Pa. system near Philadelphia, Craddock adds. “We might do some twists at that one, with MPEG streams, data and voice. But for now, it’s all voice. The more experience we have, the better for us and the industry.”
And the better for Lucent, which is getting the message that packet-compliancy is crucial, according to Marty Glapa, chief technical officer for Lucent Technologies Cable Communications. “We needed to strengthen our relationship with CableLabs (the cable industry’s research arm), and focus on PacketCable with a dedicated team. This is significant for us.”
Glapa and his Lucent team are focusing on six key areas in its work with CableLabs: Overall end-to-end solutions and call flows; signaling architecture; operations systems architecture; primary line architecture; dynamic quality of service; and security. The response to Lucent’s CableLabs participation thus far, Glapa says, has been positive. “The response to our role at CableLabs has been great. I think we’ve been recognized as a valuable contributor.”
Lucent’s CableLabs relationship is providing some additional value to the company as well. Says Glapa: “It helps us understand the cable industry; where it’s headed, and how we can help build highly scalable, feature-rich data and telecommunications networks. We’ve received significant input from the cable industry to better meet its needs.”
Yet Lucent’s new-found relationship with CableLabs has a less conspicuous side, besides strengthening its technical ties with the cable industry. It’s also designed to remove some perceived attitude baggage Lucent carries with it. “Many MSOs thought Lucent to be arrogant in its first try with the cable industry,” says one industry observer. Craddock agrees, but says that is changing. “At first, Lucent was standoffish. But now, I think they have a good shot at being a player in the network segment and can bring good partners to the table. They have a great opportunity, and have made significant progress with their attitude, but they can’t act like they did with the LECs (Local Exchange Carriers).”
Lucent’s attitude toward cable, Miles insists, is now as a partner, not an adversary. “We’re willing to listen and understand issues in cable as it migrates to multiple services. We want to operate as a partner and be viewed as a leader, because cable is a significant business opportunity for us,” he says.
Just how that opportunity plays out, however, is up for debate. “The question over time is how much need will there be for equipment like switches. But when you’re making universally needed equipment like networking, Lucent is in a good place,” says Jim Penhume, a telecommunications analyst for The Yankee Group, a Boston-based media research and analyst firm.
Leslie Ellis, senior analyst for Paul Kagan Associates, concurs. “Lucent brings an expertise on forwarding standards and interoperability to the cable industry, and it seems to have an aversion to proprietary behavior. Plus, it’s a company that knows scale economics, which should be good news to cable operators for obvious cost reasons.”
Ironically, Lucent’s new emphasis on its cable business could bring the telephone industry back to cable, says Penhume. “If Lucent can encourage the cable industry to make IP telephony work, it may interest the telco side in video again. We could start to hear more solutions regarding video from the local carrier as a defensive move, once they feel the pain of competition for video. They’ll need to match it.” Lucent is not expected to be pain-free in its emerging cable role, however. With MSO consolidation, advancing technologies and expanding services in full swing, the network provider business is getting crowded. Lucent will have to contend with powerhouses such as Cisco, Nortel, Alcatel and other niche companies.
Nortel, for instance, is strengthening its cable presence with cable modems and CMTSs and IP-based products. “Clearly, with carrier-grade IP telephony infrastructures being built, that centers around Nortel’s strategy, which is to build leading-class, full end-to-end networks,” says Mark Heslop, director of cable marketing for Nortel.
Like Lucent, Nortel is also participating in CableLabs’ PacketCable initiatives, while seeking acquisitions and strategic alliances such as its joint venture with Antec, called Arris Interactive, and building on its cable experience. Says Heslop: “We’ve been providing cable systems with networks for years, so our heritage will play very strongly in this industry segment. And with the consolidation of MSOs, I think it’s opened the door for lots of competition, especially between Nortel, Lucent and Cisco. But our strategy is clear: build large-scale, value-added networks with support services.”
For companies such as Nortel and Lucent, nurturing their relationships with CableLabs is a key part of their cable strategy. Says Glapa: “We’d like to expand into additional areas to share our expertise and reflect it back into our work. It will happen if CableLabs is willing.”
The expanding CableLabs role, Miles insists, is very important to Lucent’s long-term goal of greater participation in the cable and multiple service industries. “It shows we want to be a team player and participate in solutions,” he says.
Those solutions, Miles adds, are designed for rapid deployment by operators to generate revenue quickly. “We can offer these solutions because we’ve done them before. We’ve installed more routers than anyone. With $8 billion of upgrades being done, and our relationship with General Instrument and Scientific-Atlanta related to outside plant, that will help us.”
Just how helpful Lucent’s alliances and acquisitions are in endearing itself to the cable industry remains to be seen. Most industry experts agree, however, that Lucent has made the proper attitude adjustments and will be a major player in the cable industry. Yet the question of just how fully adjusted Lucent’s attitude is lingers in the minds of some cable executives.