Cisco buys Sonet as key to future

Aug. 1, 1997

Cisco buys Sonet as key to future

By STEPHEN HARDY

Vice presidents of business development constantly tell me that developing nations represent a prime marketing opportunity. Judging by the press releases that cross my desk every day, this certainly seems to be the case. Fiber-optic companies from Europe and the United States have poured millions of dollars into cracking such developing markets as the Far East and Latin America. (Of course, considering the trade surpluses enjoyed by such Asian countries as Japan and Korea, one wonders if the definition of "developing" needs to be reexamined.) A quick survey of this month`s "Industry Update" section reveals the results of these investments: A Swedish company has created a joint venture with a Chinese research institute to produce fiber-optic systems; an American firm will develop an undersea network for a Brazilian petroleum company; a French telecommunications giant has taken an active role in a consortium to build a submarine cable system for South America and the Caribbean.

All this attention on "developing areas" has given me an idea for solving a current personal dilemma: I`ve just moved into a new residential development, and I can`t get dial tone or cable TV.

Now, this is a rather embarrassing problem for the editor of a publication such as Lightwave. You would think that if anyone could leap gracefully over the telecommunications hurdles faced by mere mortals when they buy a new house, it would be a high-powered member of the communications trade press.

Uh...no.

Not even yours truly can avoid learning the hard way one of life`s primary lessons: Never be the first person to move into a brand-new housing development. But I`m not going to just sit here and stare at a blank TV screen with a dead phone in my hand. No, I`m taking bold, decisive action.

I`m declaring my little corner of Merrimack, NH, a developing market.

Trust me, my street is in need of development. With the exception of my house, most of the area consists of little more than trees, rocks, and large holes in the ground. It represents a perfect area for fiber companies looking to expand their customer base, as the developer tells me he plans to put 41 homes into the area. (Unless he figures on stacking them, I`m not sure how he`s going to do it--but we won`t go into that here.) We`re all going to need telephone infrastructure; we`ll all want cable TV. Undoubtedly, we`ll want Internet access as well.

Darn it, we`ll want fiber!

I`m talking burgeoning potential here, wildly expanding demand for bandwidth. Heck, as soon as I plug my computer into the Internet, I`ll have raised the area`s telecommunications traffic exponentially. (There was nothing but squirrels and mosquitoes before I arrived.) And when I get a neighbor, bandwidth demand will double! What other market have you seen that can match that kind of a growth curve?

Of course, as the first person in the neighborhood, I represent the primary trendsetter as far as the selection of communications infrastructure is concerned. Get me on your side, and you`ll likely have no problem capturing this hot new market. There fore, it would undoubtedly be worth your while to supply me with all the infrastructure I need at bargain basement rates. Free would be even better. Hey, I`m talking fiber-to-the-home here--really, how many customers can you honestly say you have in this market?

My street will be an international trade zone. I`ll welcome competitive bids from companies across the globe. And I`ll also be open to considering a wide variety of solutions. Cable modems? Send `em here. OC-192, dense wavelength-division multiplexing, leased wavelengths, Sonet rings--I`m not fussy. Want to wire my home with plastic fiber? I`ll happily be a beta site--although I must say I`ll be very uncomfortable if my house becomes smarter than I am.

In today`s hotly competitive world, your company can`t afford to ignore any opportunity to fatten up the old bottom line. You stand on the threshold of a new frontier. I eagerly await your response.

See--Lightwave really does deliver the buyers and specifiers our salesmen promise! q

Reinforcing the importance of Synchronous Optical Network/Synchronous Digital Hierarchy (Sonet/sdh) technology to backbone architectures in a variety of network applications, data switch manufacturer Cisco Systems Inc., San Jose, CA, has moved to acquire privately held Skystone Systems Corp., Ottawa, ON, Canada. Skystone develops high-speed Sonet interface chips, which Cisco plans to integrate into its routers and switches. The ability of Cisco`s equipment to operate within fiber networks represents a key portion of the company`s product development strategy, say Cisco sources.

As the company expands its focus beyond enterprise networks to address the needs of Internet service providers (isps) and alternative carriers, the demand for Sonet technology becomes obvious, says Mike Volpe, Cisco`s vice president of business development. "We have seen a tremendous amount of demand for the transport of data traffic over Sonet--basically, IP [Internet protocol] over Sonet. We call it `packet over Sonet,`" he explains. "Newer service providers--people like Internet service providers, as well as caps [competitive access providers], etc.--are looking to get into the data business, and the performance throughput of packet over Sonet is pretty hard to match."

The burgeoning availability of the facilities to meet such needs also influenced Cisco`s decision to acquire Sonet technology. "What we saw is that with the tremendous growth and expansion in the demand for IP traffic as well as a large growth in the supply of fiber--alternative carriers coming into the space, wdm [wavelength-division multiplexing]--things like that have created lots of supply for available fiber in the market. We began to perceive pretty strongly that having expertise in the Sonet space is strategic for us as a company because we will be selling a lot of equipment with Sonet technology integrated in it."

Clear vision

Cisco`s vision of Sonet in the market is 20/20, says Craig Johnson, a principal analyst at Current Analysis Inc., Ashburn, VA. "We believe that any vendor that wants to play in the isp/carrier space--larger players--will need to be proficient in the area of Sonet/sdh," he explains. The need for this expertise is particularly acute from a global perspective. "While North America is really just starting to focus on Sonet, many of the European ptts [formerly state-owned telephone companies] have already cut their teeth on the technology, with the likes of Alcatel and Siemens. While much of the North American Sonet infrastructure is currently used as a back-haul trunk system, there has been a `want` by many of the isp/carriers to leverage the extra capacity (and dark fiber) that exists in the ground."

Volpe says Skystone is currently working on Sonet interface chips that would operate at speeds greater than OC-12 (622-Mbit/sec) rates. The technology will appear first in Cisco`s Gigabit Switch Rout er, the company`s highest-speed, high-end product for backbone router applications (see figure). While the company expects the switch`s primary appeal will be to isps and alternative carriers, very large enterprise networks could also use the switch where the telecommunications service provider`s line ends and the enterprise network begins. The Sonet technology would enable the switch to interconnect Sonet rings in a metropolitan area network as well, Volpe says.

While Johnson muses that "given Cisco`s focus in the isp/carrier space, we would have expected that owning core Sonet/sdh technology would have been higher on the list of acquisitions earlier in the game," Volpe says such expertise is hard to find outside of such major telecommunications switch manufacturers as Nortel, Fujitsu, Lucent, and Alcatel, to name a few. The acquisition of such a scarce resource puts a gap between Cisco and its traditional competitors that will be difficult to close, Volpe surmises.

"If you`re a data supplier and you`re looking to put this kind of capability inside your box, at this point you have to kind of build it yourself. There`s really not that much out there," he explains. "So having this kind of capability in-house now puts us--in terms of know-how--in the same league as some of the voice competitors, except we`re coming at it from a very different angle because we`re data suppliers."

Johnson responds that while Sonet companies may not be readily available for sale, particularly in North America, such technology can be licensed fairly readily from either North American or European sources. Thus, he says, data companies looking to add Sonet to their arsenals could take this route to their goal.

Having placed Cisco in the company of the major telecommunications switch manufacturers, does Volpe foresee that Cisco will use its "different angle" to target the customers of more-traditional Sonet equipment vendors? Volpe says that for now, the technology acquisition is best viewed in the context of Cisco`s more familiar adversaries. "It gives us a competitive edge against our traditional competitor base," he says. "The voice providers will still build their Sonet add/drop multiplexers and Sonet equipment, which we`re not going to be in the business of building short term."

As if to emphasize its interest in maintaining harmonious relationships with the telco world, Cisco has linked with Alcatel to jointly address Internet applications over the public network. Alcatel will provide expertise in public switched networking, high-speed access and voice communications. Cisco will offer its data communications and Internet know-how. While the initial focus will be on Alcatel Asynchronous Transfer Mode and Integrated Services Digital Network switches, extension to Sonet/sdh transmission (as well as global systems for mobile communications) is possible, according to the two companies.

Enterprise Sonet

Cisco is not the only member of the data network community to recognize the potential of Sonet. For example, Cabletron Systems Inc., Rochester, NH, recently announced an upgrade to its data networking family that would enable users to link geographically disparate local area networks via Sonet rings (see Lightwave, July 1997, page 1). Any advantage Cabletron may enjoy from being first to market will likely be brief, however. "Clearly, we see that as a very interesting opportunity to leverage this technology in the enterprise space," says Volpe in considering Cabletron`s Sonet offering. "Clearly, that was in the back of our minds." q

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