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Converging Broadband
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Cisco’s Acquisition of
Scientific-Atlanta is the Right Move, says Detecon
Other Topics:
Broadband Challenge,
WiMAX Access on UK Trains
- Tactically, Scientific-Atlanta
Leadership Position in Set-Top Boxes offers Cisco a Front-Row Seat in
the Emerging Digital Living Room
- Strategically, the Combination of
the Two Companies Creates One Stop Shopping in the Rapidly Converging
Broadband Access and Entertainment Markets
Reston, VA – Detecon, Inc., a leading
global telecommunications and information technology consultant, today
commented on the pending $6.9 billion acquisition by Cisco (CSCO) of
Scientific-Atlanta (SFA), the world’s second-largest producer of Cable
Set-Top Boxes behind Motorola (MOT). |
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“The acquisition makes sense both tactically and strategically,” said
Eckart Pech, CEO of Detecon, Inc. “The move compensates for Cisco’s
inability to play a significant role in Telco infrastructure build-outs
aimed at offering a full portfolio combining voice telephony, video
entertainment, high-speed internet access and wireless services.”
In delivering this full portfolio of services, known in the industry as
Quadruple Play, technology providers such as Alcatel have gained
significant traction, often at Cisco’s expense, in the billions being
spent to upgrade Telco networks worldwide.
Why should this worry Cisco? Alcatel, the French technology giant, has
leveraged its supremacy in the DSLAM market with some judicious
acquisitions (Timetra and Spatial Wireless, among others) augmenting its
portfolio to the point where it now offers one stop shopping to
carriers. To further its grip, Alcatel’s partnership with Microsoft
completes its IPTV offering without creating any conflict of interest
between Paris and Redmond.
In short, Alcatel has relegated Cisco to a lesser player in the new
Telco video market. Even after its Linksys acquisition, Cisco has
remained an enterprise player; it needed a residential market strategy.
“The logical move for Cisco is to focus on the Cable market,” added Dr.
Patrick Pfeffer, Senior Consultant at Detecon, Inc. “Cisco today
controls over 70% of the Cable Modem Termination System (CMTS) market;
and with Scientific-Atlanta it can now offer to Cable MSOs what Alcatel
offers to the Telcos.”
On the access front, MSOs will rely on Cisco to speed up the deployment
of DOCSIS 3.0 and Telcos will count on Alcatel and other equipment
providers for DSL expertise.
“We’ve seen similar industry dynamics in other countries,” says Pech.
Detecon, who has provided telecom consulting services in over 120
countries around the globe, offers valuable insights to how markets
behave. “As technologies and competitors converge, industry players will
need to expand the skills and expertise they offer the marketplace,” say
Pech.
Detecon feels that Scientific-Atlanta provides Cisco with video
expertise, a significant ingredient for survival in today’s
rapidly-converging marketplace, which was missing from Cisco’s toolbox.
While this new-found video savvy may help Cisco in other areas, not even
Scientific-Atlanta can help Cisco grow its share among Telco build-outs
over an above what it has already won.
Detecon believes the merger is the right move for Cisco, however the
consulting firm has some concerns about the combined entity.
Cisco and Scientific-Atlanta differ dramatically both operationally and
culturally. Integration will be difficult, even more so than any of
Cisco’s other acquisitions. Detecon notes that Cisco’s two largest
acquisitions to date, Cerent (1999) and Stratacom (1996) were not only
smaller companies to integrate, but the acquisitions took place in an
era where both the telecom and financial markets were quite different.
Detecon is also concerned that Cisco may be overestimating
Scientific-Atlanta’s long-term hold on the Set-Top Box market, in light
of emerging technologies that offer programmable System on a Chip (SOC).
Detecon believes SOCs will commoditize the Set-Top Box, thus allowing
low-cost Asian manufacturers to enter the market, which is dominated
today by Scientific-Atlanta and Motorola.
Detecon believes that Juniper (JNPR) will make a similar move, seeking
to extend its portfolio and enter the living room. Like Cisco, Juniper
must play a larger role in the emerging residential video market.
For further information about this analysis, please contact Dr. Patrick
Pfeffer at Detecon, Inc. at (650) 401-5222 or Patrick.Pfeffer@detecon.com.
About Detecon
With over 3,000 projects in 120 countries and more than 600 consultants
on staff, Detecon is one of the world’s leading global consulting firms
for the communications and information technology industry. Providing
business insights and technology services that help clients succeed,
Detecon serves enterprises, service providers and government entities in
the Americas, Europe, Asia and Africa. Detecon, Inc. is headquartered in
Reston, Virginia, with other U.S. offices in San Mateo, California;
Seattle, Washington and Mexico City. Additional Detecon offices are
located in key markets throughout the world. Detecon is a fully owned
subsidiary of T-Systems International GmbH, a division of Deutsche
Telekom. Please visit us at www.DeteconAmericas.com. |
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