NES to Avaya, Tandberg (Soon) to Cisco as Industry Consolidation Accelerates

Two 2009 deals will change things in the unified communications sector. In the bigger picture, they also are steps in a well-established process of industry maturation.

Early in December, Avaya won an auction to buy the assets of Nortel Enterprise Solutions. That deal closed on Dec. 18. On Oct. 1, Cisco announced an agreement to acquire Norwegian telepresence and video conferencing company Tandberg. That deal was well on its way to completion – though not in fact a done deal – as of the last week of December. Cisco’s public relations firm said that the deal is expected to close during the first half of 2010.

The deals differ in their specifics and what each brings to the surviving firm and their customers. What is certain is that they are big moves that will speed the evolution of the UC category.

Avaya Says Yes to NES

Nortel Enterprise Solutions’ (NES) move may be particularly prudent as services move to the cloud and organizations become more comfortable with the concept. Howard Lichtman, the president and founder of telepresence consulting firm Human Productivity Lab, said that NES’ strong suit – offering UC as a managed service – can be a boon to Avaya. “Avaya has an important decision to make,” he said. “Are they going to continue that as a line of business? If they do, they have a strong foundation from which to build.”

An important evolutionary step for the UC category is building interoperability between platforms belonging to different vendors. This can be done in several ways. For instance, it can be accomplished from within the platforms through creation of standards and interoperability certification. It also can be done externally to the equipment itself through gateways and other elements that form, in essence, a middleware layer.

Lichtman said that NES provides this federating function for different platforms – including Polycom and Tandberg – and offers other services, such as help desk, concierge, reservation, network management, network infrastructure and video services. It was reported last week that 25 NES executives are expected to make the jump, and that Avaya will retain about 500 more NES employees than initially thought.

NES is bringing Avaya a stable and reliable source of revenue, Lichtman said. Avaya can put that to good advantage, he said. “It’s a recurring revenue stream, the kind of money that Wall Street likes. They are hard to dislodge. Fortune 5000-type companies spend typically thousands per month to manage these things. It’s a very, very attractive type of business.”
Cisco Moves on Tandberg

The Cisco/Tandberg deal may be considered a bit sexier because anything involving video is noteworthy. The keys to the deal for Cisco appear to be both the acquisition of an acknowledged leader in the video conferencing sector and the opportunity to push the UC category as a whole toward video. The more video the better for Cisco, which will see benefits in its overall networking business.

“It’s Cisco looking to drive additional traffic on its networking infrastructure and to expand its presence in video collaboration,” said Alan Weckel, a director at the Dell’Oro Group. “As we go on, we are going to see more and more video throughout the enterprise as well as SMBs as a way to communicate and conduct business.”

Lichtman guesses that about 20 percent of the UC category is video conferencing. Obviously, Cisco benefits as that total is pushed higher. More specifically, he sees important elements in the Cisco acquisition: It gains a strong provider of video conferencing end points – the gear that sits on desks and in conference rooms — as well as Tandberg’s research and development and channel strengths. It simultaneously eliminates a strong competitor. Like Avaya, it will gain considerable expertise in the form of executives who stay with the firm.

“Cisco’s acquisition of Tandberg is very very important,” he said. “It almost locks up the visual collaboration space for Cisco and instantaneously makes them the strongest player in the telepresence and video conferencing sector.”

The Chess Game Continues

In the big picture, the two deals can be seen in the context of the continuing synthesis of UC and the broader worlds of IT and telecom, a process that will take years to work through. Krithi Rao, an analyst for Unified Communications for Frost & Sullivan, said that the evolution of IP, time-division multiplexing (TDM) and hybrid equipment suppliers is entering a new phase in which the platforms are linked in collaborative and UC-based scenarios.

The companies that figure out these connections most effectively will control the UC/collaborative space. To an extent, both the Cisco/Tandberg and Avaya/Nortel Enterprise Services deals can be assessed in this bigger framework. For many, that’s where the money will be in the 21st century.

“VoIP also is now evolving to a broader communication technology,” Rao said. “Within that process there is going to be a shift in the competitive landscape.”

The action is just starting in the unified communications sector, and there is no reason to think that the normal arc of development won’t take place: Big vendors will go after smaller firms in an effort to buy market share and name recognition, channel capabilities, technology, expertise and other assets. “There is a lot going on in this space,” Weckel said. “Going forward�there will be more consolidation and more acquisitions as vendors try to offer enterprises a complete solution.”

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