Acquisition gives Lucent ammunition against Cisco

Lucent Technologies wasted no time in answering rival Cisco Systems' plan to take a significant stake in KPMG's new Internet consulting service with a services acquisition of its own Tuesday.

Lucent's plan to merge with network consulting and services firm International Network Services, in a deal valued at $3.7bn (£2.3bn), will greatly strengthen its NetCare professional services offering.

At the same time, it raises several questions about Cisco's relationship with INS. Cisco has a 6.7 percent stake in the firm, which has received business referrals from the network equipment giant.

Although INS President and CEO John Drew said no disruption for customers will take place, "it's realistic to expect a realignment in our relationship with Cisco," he said. "We would certainly want to engage Cisco's clients just as we have in the past."

Whether that will impact future business from Cisco remains to be seen. "Referrals come in from Cisco and every other major network provider out there and every service provider out there," Drew said. "It's a recognition that we do quality work." Much of INS' network design, implementation and support services represent repeat business with its current customers, he added.

The change of allegiance could have a negative impact on Cisco, according to Esmeralda Silva, an analyst at International Data Corporation. "INS was responsible for servicing a lot of the Cisco routers. KPMG doesn't have that," she said. "This will shed new light on the fact that they don't have anyone to do the service on those routers." (Cisco plans to invest more than $1bn (£620m) in KPMG, a move that provides Cisco with a small army of e-business integrators.)

Drew will lead the NetCare division and the combined 5,500 employees that will make up the division when the merger is complete. "NetCare is strong in 24-hour monitoring, INS is strong in network consulting and design," said Pat Russo, Lucent's executive vice president of strategy and business development. "Lucent has embryonic consulting in systems integration and service provider operational support. INS takes it to the next level working with CIOs on next-generation network design."

Russo believes the merger will position Lucent as a clear leader in the fast-growing market for network services, where the NetCare division already provides remote monitoring and diagnostic services. The market is growing at 16 percent a year and is expected to reach $153bn (£95bn) in 2002, she said: "In the next two years, 1,000 new service providers will enter the marketplace."