SBC, Cisco in Multibillion-Dollar Deal
By Duncan Martell Apr 19 4:16am ET
SAN FRANCISCO (Reuters) - SBC Communications Inc. and Cisco Systems Inc. will
announce on Wednesday a deal that the companies said would be worth billions of
dollars over the next 21 months, with SBC agreeing to make Cisco, the biggest maker
of computer-networking equipment, its preferred provider of networking gear.
For Cisco (CSCO.O), the agreement is its largest ever with a Baby Bell. For San
Antonio-based SBC, it is a continuation of efforts to augment its data-communications
services for businesses. Precise financial terms were not disclosed.
The deal, a Cisco executive said, reflects customers' demands that Cisco provide a
``complete solution.'' ``Customers don't want to buy boxes and pipes and put it all
together themselves,'' Larry Lang, head of service provider marketing for Cisco, said in
Because of the explosive growth of the Internet, companies that provide the networking
infrastructure, such as Cisco, Alcatel SA of France, Lucent Technologies Inc., Nortel
Networks Corp. of Canada and others, are racing to sell next-generation equipment
that can transmit voice, data and video across one network to firms such as SBC,
AT&T Corp., MCI Worldcom Inc. and others.
DOUBLING SEEN IN THREE YEARS
In a statement to be issued on Wednesday, SBC (SBC.N) said that it expected sales
of its data services to double in the next three years. SBC said that it would use
Cisco's networking gear primarily to provide superfast Internet access through DSL, or
digital subscriber lines, in the five Midwestern states served by Ameritech Corp.,
another Baby Bell that SBC bought last year.
A Cisco spokesman said that the deal was the largest that Cisco, headquartered in
San Jose, California, had made with a Baby Bell. Tom McGrath, president of SBC's
data unit, said talks between the companies had been going on for two years but had
intensified in July.
Cisco has, to an extent, been seeking inroads into the lucrative $300 billion
telecommunications equipment market in the last two years. With this deal, McGrath
said, Cisco convinced the telco firm that Cisco gear could handle SBC's data traffic
``We have increased our level of confidence in (Cisco),'' McGrath said.
Besides providing DSL technology and products to SBC, Cisco will also supply
so-called EVPN technology, which allows for secure connections and communications
among different office sites of a company.
The two corporations said their deal also called for Cisco to provide SBC with more
flexible and efficient dial-up access to networks, a technology that allows DSL
customers to switch easily between Internet service providers and corporate local
networks, and technology that can transmit voice, data and video simultaneously
across one network within a company.