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Avaya, Extreme Pen IP Pact

Borrowing from the consumer telecom playbook, Avaya and Extreme Networks are teaming to provide businesses with one-stop shopping for converged voice, video and data communications equipment and services.

The alliance combines Avaya's Internet protcol telephony applications with Extreme's IP data network gear. Avaya will resell Extreme's products and provide planning, installation and management through its services arm.

"This stage of converged communications requires a different relationship with customers and vendors alike," Extreme's president and CEO Gordon L. Stitt said in a conference call.

Although the deal is non-exclusive, Extreme believes a joint offerings will help it compete with larger players such as Cisco .

Another key to the pact is reserach and development. The companies will invest several million dollars annually to develop technology and products. Areas of focus include: quality-of-service, security, and network resilience using new protocols such as Session Initiation Protocol .

Stitt said the reseller deal expands its reach. Avaya sales staffer call on 90 percent of Fortune 500 companies in the United States.

The deal will likely result in Avaya taking a stake in Extreme. Under the pact, Basking Ridge, N.J.-based Avaya will be granted a warrant to purchase up to 2.6 million share of Santa Clara, Calif.-based Extreme's common stock at just a penny per share. Boosted by news of the pact, Extreme's stock traded at around $9.40 per share this morning.

Stitt said the warrant is exercisable over time and is worth about $20 million. It was included because Extreme expects significant benefits from the joint development efforts, Stitt said.

The alliance does not replace the companies stand-alone efforts. Avaya will continue to offer its existing customers its own line of data networking products, in addition to the Extreme Networks portfolio. And Extreme Networks will also continue to sell its switching systems through its multinational distribution channels.

But it's clear that both feel it could be a cost-effective way to increase business and reduce customer churn. It's a strategy that has worked well for the Baby Bells and their cable competitors.

The companies have bundled combinations of high-speed Internet access, local and long-distance phone service, and satellite or digital video and see it as key to keeping and retaining subscribers because of the single point of contact and savings.