Users highlight pricing concern over vendor buying spree

Just when you thought the buying spree was over, Lucent appears set to buy Ascend for about $20 billion, billed as one of the industry's largest ever deals.

But to many observers the news is no surprise. Leading networking vendors such as Cisco, Nortel Networks and Lucent continue the chase to acquire rivals or a start-up company worth adding to the list.

Over the past five years, Cisco has reportedly spent over $US7 billion to buy more than 25 companies.

Both Lucent and Nortel Networks can produce similar figures, with Nortel making headlines last year for its $US9.1 billion buyout of Bay Networks.

However, this rapid consolidation of the networking industry around a few dominant players is leaving some users nervous about its long-term effects -- particularly where pricing is concerned.

Underscoring the concerns of Phil Schubert, network manager of Perth-based Westrail, is the belief that vendor dominance equals higher prices.

Schubert said the consolidation is set to result in significantly less choice of high-end equipment providers.

It was an issue when IBM dominated the PC market and Microsoft is doing the same thing now with Windows and Microsoft Office, he argues. "I'm watching the Microsoft prices beginning to climb," he said. "I just don't like paying through the nose, full stop!"

Schubert manages a 3Com-based network to cater for around 1500 Westrail staff, and it is almost time to conduct an upgrade that occurs once every three years.

"If the rest of the world moves to Cisco we'll have to go that way," Schubert said. "[But] I think it will be a while before 3Com loses its dominance in hubs." He summarised the feeling of many users who feel powerless to influence the vendors. "I don't have any influence or control, and I'm very frustrated with the larger vendors," he said.

IDC analyst Graham Penn attributes the buyout activity over the last five years to vendors' desire to become complete end-to-end suppliers.

He believes users are impressed by a vendor's ability to offer a "single point of shopping" for networking and connectivity needs.

"Fundamentally, what [vendors] have been doing is buying technology they don't have time to develop themselves," he said. "The trick is to buy companies that have a future."

For example, Penn lists 3Com's purchase of US Robotics as a bad move because US Robotics' was no longer a profitable company capable of adding long-term benefits.

When it comes to pricing concerns, Penn is more pragmatic: "Price collusion is probably the furthest thing from their minds at the moment."

Companies such as Cisco, Lucent and Nortel Networks are busy developing or buying technologies and boosting visibility in markets around the world, he said.

However, Penn issued a warning against the end-to-end argument. "Somewhere down the track you get locked into some proprietary technology and pay through the nose," he said.

Mike Houlihan, manager computing and communications at the University of Western Sydney, said as an "almost exclusive" Cisco customer he enjoys discounts as an education provider.

Unlike Schubert, Houlihan has few concerns with the industry consolidation. "I tend to think networking is so pervasive there will always be some form of competition," he said.

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More about 3Com AustraliaAscendBay NetworksIBM AustraliaIDC AustraliaLucentMicrosoftNortel NetworksUniversity of Western SydneyUniversity of Western SydneyUS Robotics

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