By Ritsuko Ando

NEW YORK (Reuters) - Cisco Systems Inc. and Microsoft Corp. often describe themselves as partners, but they increasingly look like rivals as they compete to bundle e-mail, phones and other communication tools into a single system.

While both companies are leaders in their respective fields of network equipment and software, Cisco and Microsoft separately announced this week significant acquisitions that show they are gearing for a fight.

Cisco said on Thursday it planned to buy online video conferencing company WebEx Communications Inc. for $2.9 billion. A day before, Microsoft said it will buy Tellme Networks Inc., a privately held speech-technology company.

Both acquisitions are aimed at bolstering their product line of so-called "unified communications", which are systems that integrate wired and wireless phones, Web-based phone services, e-mail, instant messaging and Web conferencing.

Such systems allow officer workers, for example, to see on a computer screen where a colleague is and click on a phone number to make a call, or switch from a mobile to desktop phone while in the middle of a conversation.

"I have no doubt that we'll see more acquisitions and more partnerships as the two companies keep trying to get ahead of each other in this whole unified communications space," said Jan Dawson, vice president of U.S. enterprise practice at technology research and consulting company Ovum.

The rivalry became apparent after Microsoft and network equipment maker Nortel Networks announced a broad alliance in unified communications last year. They are set to sell more products together in the coming year.

Cisco, in the meantime, has been expanding its alliance with IBM to develop unified communications system.

"I do see Microsoft, with Nortel, being more formidable in the second half of 2007," said Kenneth Muth, an analyst at Robert W. Baird & Co. "I think the evidence will be more prominent in 2008,"

Mike Gotta, an analyst at the Burton Group, said successful sales from the Microsoft-Nortel alliance may threaten Cisco, although he predicted any impact would likely take a few years. "I really see 2009 and 2010 as the tipping point," he said.

NETWORK VERSUS SOFTWARE

Cisco's advantage is its network expertise. The company is the world's top maker of routers, which direct Internet traffic, and recently expanded into Web-based video technology, as well as consumer-oriented products.

Microsoft, on the other hand, is the world's largest software maker and its Windows and Office are the most ubiquitous software in most companies.

Some analysts said Microsoft had the upper hand as software evolves more rapidly than networks.

Goldman Sachs analyst Brantley Thompson, however, said he was not too worried about the Microsoft threat as Cisco had wide distribution channels and broad technology expertise, which includes wireless technology and Web security.

"A lot of collaboration is network intensive and I think they're going to have an ability to integrate a lot of things across the network," he said.

Most analysts said it was too early to predict any impact of increased competition on share prices. Cisco shares are up more than 20 percent from a year earlier, while Microsoft shares are flat. Both companies are trading at around 16 times consensus earnings estimates for 2008, according to Reuters Estimates.

Executives of both companies played down their rivalry, emphasizing instead their relationship as partners. The two companies integrate each others' products to ensure they run together smoothly.

"I believe Microsoft and Cisco are largely complementary," said Cisco Chief Development Officer Charles Giancarlo.

Kim Akers, general manager of Microsoft's Unified Communications Group, said there was customer demand for the companies to work together. "Obviously there will be places where we compete, and where we partner," she said.

(Additional reporting by Daisuke Wakabayashi in Seattle)