Big Time

Mergermania has begun, as industry pundits predicted would be the case.

For service providers, these deals usually are about achieving scale and moving to capture distressed assets while the getting is good. Equipment providers, meanwhile, are moving to put together broader portfolios so they can offer carriers end-to-end solutions that require less systems integration. Expanding into new areas through mergers and acquisitions also can help companies such as Ciena expand from the tough sell in fiber optics to hot new areas like access.

While I am definitely not a believer in the notion that bigger is better when it comes to companies, this resurgence of merger and acquisition (M&A) activity certainly can be seen as a positive indicator that industry recovery has begun.

At the same time we’re seeing this new activity in M&A, some of the big guns such as Lucent and Nortel Networks are relying more on partnerships with other vendors than equity deals — at least for now — to meet their expansion needs.

Lucent has partnered with Movaz Networks to develop a new product to fill out its metropolitan optical networking product line. And Nortel has called on Calix, ECI Telecom and KEYMILE to help it deliver end-to-end “ultrabroadband” solutions. Chris Nicoll of Current Analysis says the move by Lucent indicates the company “is getting smarter about how to enter the markets.”

In addition to the upfront costs, the integration challenge of M&A may be one of the reasons larger vendors are choosing partnerships over corporate combinations. As one Nortel manager told xchange, the company learned some painful lessons during its past acquisitions.

While there’s the expectation that many companies — large and small — are on track to bulk up in the future, some smaller companies say that will only open new opportunities for them. The smaller fry say they can better focus on specialized customer sets such as rural telcos or particular products or services. While the RBOCs have had limited success in selling managed services, a crop of specialized providers have made advances on this front.

And that’s just one example of how specialization can succeed.

Still, consolidation is expected to continue.

Until next time,

Paula Bernier
Editor in Chief

Share this article: Email, Slashdot, Digg, Del.icio.us, Yahoo!MyWeb, Windows Live Favorites, Furl
Add this article feed to: RSS, My Yahoo, Newsgator, Bloglines