Lucent spends big on INS

MURRAY HILL, N.J. - By acquiring consulting and management services firm International Network Services last week, Lucent took a major step toward becoming one of the premier providers of enterprise network management services.

But the move also presents a risk to Lucent because the success of the $3.7 billion acquisition actually depends heavily on relationships with Lucent competitors such as Cisco. Further complicating matters is the fact that Cisco owns about 6.7% of INS.

Lucent is expected to close its acquisition of INS by year-end. INS will be merged into Lucent's NetCare division, which provides remote monitoring and other services for enterprises and carriers. Lucent executives conceded that the enterprise networks that Lucent's NetCare division and INS will jointly manage will probably consist not so much of Lucent products, but those of competitors' on the data side, for years to come.

That means relationships with competitors will have to be kept up even as Cisco edges its way into management services. Also last week, Cisco announced it will invest more than $1 billion in consulting firm KPMG LLP's Internet-related services business, which focuses on enterprise network and carrier markets.

Lucent executives have shown a reluctance to go out and spend more stock and cash on enterprise product companies to dislodge Cisco, Nortel, 3Com and other companies from the very data networks Lucent now proposes to manage. "Often customers have made their product choices before they seek professional support capability," says Lucent Executive Vice President Patricia Russo, who has headed up Lucent's aggressive acquisition strategy. "I expect that they will continue to do that."

Russo hastens to add that Lucent and INS professional-services sales staffers will be trained on Lucent's current enterprise data products, none of which currently command even 10% of their respective market segments despite generally good reviews. These include Gigabit and Layer 3 Ethernet campus switches, high-speed workgroup switches and a range of ATM gear, though Lucent lacks basic router and hub offerings.

New relations

"I think it's realistic to expect that we'll have a realignment in our relationship with Cisco," says INS President John Drew. But he says he hopes this change will focus on corporate issues and not on whether Cisco continues to refer customers to Lucent for professional services.

"We don't want to see any interruption in the client relationships," Drew says, adding that INS historically has hung on to users for repeat business once it has gotten them.

Meanwhile, Cisco lauded KPMG's ability to pump up Cisco's services prowess.

"We chose to make an investment in KPMG's consulting business because KPMG understands how the Internet will reshape the future of all businesses," said Cisco CEO John Chambers in a statement. "KPMG played an integral role in moving Cisco's own business to the Web. Under this joint venture, our customers can now count on the Internet systems expertise of Cisco and the Internet solutions expertise of KPMG . . . to move their business to the Internet."

Cisco and KPMG expect to close their transaction next month.