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AT&T, Cisco in Major Alliance Expansion

In a move that could quickly expand their sales channels and market position in managed services, telecommunications provider AT&T and networking hardware maker Cisco Systems have announced an extended strategic relationship.

By strengthening their ties, both companies are eying a stronger foothold in the mid-sized business market, where analysts currently see better selling opportunities for managed IT services compared to larger enterprise customers whose IT budgets are either stretched or set for now.

For starters, the joint offers span 17 products and services, AT&T officials said, including Internet-protocol virtual private network (IP VPN) services, IP network security services, metro optical and Ethernet services, managed router services, managed hosting services and voice/data integrated-access services such as IP telephony. During a conference call to discuss the alliance, AT&T officials said new products that leverage their research and development assets are also on the drawing board.

As part of the agreement announced Tuesday, AT&T's 1,200-strong sales force will now be committed to selling the companies' collaboration products and touting Cisco's lines. For Cisco, which relies on a sales channel of about 3,000 systems integrators and value-added resellers (VARs) to tout its hardware, the enhanced alliance with AT&T gives its resellers a significant boost in new, cutting edge products and services to offer existing and new customers.

"This helps the systems integrators and VARs position their value to vendors, and helps them enhance their market position especially in the mid-sized-market," said Michael Haines, IT analyst for tech research firm Gartner .

"What this means to the marketplace is that you have two substantial players in convergence services and products, such as telecom and data, announcing that, in addition to collaborating on managed services, they're also collaborating at the executive level with formal planning initiatives around products and technology," he said.

Haines called the commitment to the relationship by senior executives of both companies a strong sign this is more than an everyday strategic alliance announcement. "Both companies are aware of the critical nature of joint business planning as part of the partnership," he said.

As to whether the enhanced alliance with AT&T could complicate Cisco's alliances with other tech and telecom players, such as IBM, Sprint and SBC, Haines didn't see any possible friction.

Cisco also has an alliance with HP, "which is getting huge in managed services," Haines noted. But "for Cisco, this is another alliance to improve its leverage with another major service provider. They have their sales channels, which is their way to market, and this is one more effort on the part of Cisco to shore up an alliance with a major player that is driving services in the marketplace."

Rick Justice, senior vice president for worldwide field operations at Cisco, said the extension of the alliance would help the company expand its market in the multi-billion dollar managed services market. It would also "simplify the purchase process for our mutual customers by facilitating joint sales, partner planning and customer engagements," he said, and "identify the best-in-class Cisco channel partners that can most effectively sell AT&T managed services, especially in the growing small-to-medium business market."

Hossein Eslambolchi, AT&T chief technical officer and president of AT&T Labs, said one example of the combined effort, available today, is AT&T IP-Enabled Frame Relay Service, which is based on Cisco technology. The latest arrangement further formalizes the companies' commitment to working together to spur innovative services and products, he said.