11/14/2006 -- Cisco Systems Inc. suffered a prominent customer loss last week, as Alcatel and Cisco client University of Pittsburgh Medical Center (UPMC) entered into a $300 million, multiyear agreement. Under the terms of the pact, Alcatel will use UPMC's communications infrastructure -- entirely replacing its Cisco hardware innards. In addition, Alcatel officials said, the two organizations will jointly invest $25 million to develop advanced communications technologies and applications focused on the health care industry.

The transformation project, slated to start early next year, calls for the rip-and-replace upgrade of UPMC's wired and wireless data infrastructure and enterprise telephony system -- as well as more than 25 contact center platforms -- to a new, converged IP infrastructure. Analysts say it's a big win for Alcatel, which -- with this year's acquisition of the former Lucent Technologies --is increasingly demonstrating that it is a force to be reckoned with.

"The deal is both a marketing and sales coup for Alcatel. Not only will it bring in an influx of cash over the next four years, [but] the contract will highlight the very broad range of Alcatel's voice, data, contact center and wireless products, as well as the company's ability to combine them all into a single solution for large enterprises in North America," said Joe Outlaw, a principal analyst for consultancy Current Analysis. Among other things, the contract calls for Alcatel to completely rip-and-replace UPMC's Cisco-based data network. To that end, UPMC will roll out Alcatel's OmniPCX to support its 40,000 employees.

Elsewhere, UPMC will tap Alcatel's DWDM metro-optical equipment -- namely, the Alcatel 1696 Metrolink running MPLS at 10Gbps -- for its network core, while an all-Alcatel data network will be deployed at the network edge and in data centers. UPMC's voice environment is currently 45 percent analog, 45 percent digital and 10 percent IP, By the end of the migration, however, those numbers should change to one-third analog, one-third digital and one-third voice, respectively.

Nor is "coup" too strong a word, Outlaw insisted. "The UPMC contract will raise Alcatel's visibility in North America. where the company’s enterprise communications solutions have not been widely adopted despite their obvious technical merits," he said. "Such a high-profile customer win will help Alcatel spread the word about the strength of its communications platforms. Very few of Alcatel's competitors could deliver what UPMC required for its network transformation project because UPMC wanted a single supplier to deliver voice, data, optical, wireless and contact center infrastructure to support tens of thousands of end users, as well as be active in industry-specific R&D initiatives."

Outlaw doesn't see just sweetness and light in Alcatel's UPMC coup, of course. For one thing, he said, the proposed transformation project is Alcatel's biggest to date. That could spell trouble. "It is planning to do most or all the work itself rather than rely on systems integrators or professional services firms. Alcatel's enterprise division is not well-known for its internal services capabilities, beyond product support. It remains somewhat unclear if Alcatel has the resources necessary to complete a project of this magnitude and at the same time have personnel and money to spare to push forward in other initiatives, such as growing its North American visibility and market share," he pointed out.

In this respect, Alcatel is counting on support from its recently acquired Lucent services arm, Outlaw noted. In a sense, though, that might amount to counting one's proverbial chickens even before their hatchlings. "[T]he Alcatel-Lucent merger has not yet been approved," he pointed out, noting that approval from the Committee on Foreign Investment in the United States (CFIUS) is still pending. "Even if regulatory approvals are complete before work on the UPMC project starts in early 2007 -- which seems likely -- Lucent's services organization will mainly, perhaps only, be able to help with the installation of the carrier-grade components within UPMC's network."

In a way, Outlaw said, the sheer scope of this win also helps dictate Cisco's response -- which is to position Alcatel's coup (and the loss of a major Cisco account) as an extremely rare occurrence. "Cisco should present the Alcatel-UPMC account as an extreme rarity," he said. "There are few organizations with the breadth and depth of IT requirements that the UPMC demonstrated with its Alcatel contract." -- Stephen Swoyer