Sprint, Cisco sign deal to boost each other's products

Ben Klayman

CHICAGO: Sprint Corp., the No. 3 US long-distance telephone carrier said on

Tuesday it signed a three-year agreement with networking giant Cisco Systems

Inc. to drive demand for each other's products and services for the Internet

infrastructure.

Kansas City, Missouri-based Sprint said the deal -- unlike the failed Ion

high-speed network project launched to great fanfare three years ago -- will not

be a financial drain on the company and will leverage existing technologies.

Terms of the deal were not disclosed by either side. However, Len Lauer,

president of Sprint's Global Markets Group, in response to a question about

whether his company would spend hundreds of millions of dollars each year buying

Cisco equipment, replied, "Yes, it's very sizable."

Cisco in turn has agreed to sell a certain level of Sprint products and

services during the contract, he said. There will be incentives for both

companies to meet the agreement's annual targets.

The agreement extends a relationship between the companies as Cisco already

supplies most of the routers Sprint uses for its Internet Protocol (IP)

backbone, analysts said.

Sprint generates more than $1 billion in revenues annually selling IP-based

services to customers and expects that business to grow strongly, Lauer said.

However, some analysts said the new agreement likely won't have a material

impact on Sprint's earnings.

Cisco's stock closed up 36 cents, or almost two per cent, at $19.62 on the

Nasdaq, while Sprint's closed up 14 cents at $19.70 on the New York Stock

Exchange.

In June 1998, Sprint announced plans to move away from its traditional

voice-transmission network and introduce in 1999 a new system able to carry

high-speed voice, video and data communications using Internet technology.

The system -- the ION high-speed network project that would allow customers

to make phone calls, send and receive faxes, and cruise the Internet over a

single phone line -- was delayed and in October finally killed. Sprint said at

the time that the decision was made to eliminate a drain on profits.

Remembering that failed deal, some investors are wary about the new

agreement. "Investors will be skeptical. How much dollars in revenues and

at what profit margins?" said Steve Mygrant, portfolio co-manager of the

Fifth Third Technology Fund, which owns both Cisco and Sprint shares.

He said Cisco is focused on pushing deeper into the telephone provider

sector, where it is weaker. Cisco's strength has long been the enterprise

sector, or large corporate customers other than telecom carriers.

One way Cisco plans to do win more customers on the telecom side is use its

strength with enterprise customers, UBS Warburg analyst Nikos Theodosopoulos

said. The San Jose, California-based company will try to entice carriers to use

its sales force to sell their services to corporate customers.

Nuti said Sprint also will buy new equipment, including optical gear and ATM

(asynchronous transfer mode) switches, a very high-speed transmission

technology. "Our overall share of Sprint's (capital expenditures) is

relatively low when all is said and done so we've got a lot of upside," he

said.

In addition to winning new corporate customers, Sprint gets to leverage

Cisco's strong sales force and burnish its image by associating with a high

flier like Cisco, Sprint's Lauer and analysts said. Sprint and Cisco executives

said this new agreement is completely different from the ION deal, with a

different financial market and different technology being offered.

"We've made some mistakes. They would admit they've made some mistakes

in the past. The good news is we've learned from them," Bill Nuti, head of

Cisco's global service provider operations, told Reuters. Lauer told Reuters

there is no repackaging of ION technology in this new agreement.

The idea behind the new agreement is to join forces in sales and marketing to

deliver to customers a range of equipment and services, initially focused on

selling IP-based and broadband services, the companies said. A technology

advisory board also was created that will focus on new technologies for the

companies to offer in the future, said the companies, which have worked on the

deal over the last eight months.

Nuti said he expects to announce similar agreements in the United States over

the next six to 18 months.

(C) Reuters Limited.