1/15/2007 -- It was easy to miss it in the pre-Christmas rush, but a major networking and communications vendor not named Cisco Systems Inc. recently ponied up nearly $2 billion U.S. for a prominent provider of IP edge routers.

The buyer? Scandinavian telco giant Ericsson. The buyee? Edge routing specialist Redback Networks Inc. The takeaway: an Ericsson that's much less dependent on third-party vendors and, with mobile, optical, multiservice WAN and (now, thanks to Redback) IP routing assets, is a bona fide force to be reckoned with in nearly every major network segment.

"[Redback] provides [Ericsson] with a leading IP edge solution with strong Ethernet aggregation, BRAS and solid edge routing capabilities -- key components required to support IP-based data and user-centric converged communication solutions," said Glen Hunt, a principal analyst for carrier infrastructure with Current Analysis. "In addition to bringing strong IP capabilities into the Ericsson solution set, the move enhances its leadership position and reduces the company's reliance on third-party suppliers to deliver next generation wireless/wireline solutions."

In this last respect, especially, the Redback acquisition is key for Ericsson. "[W]ith the move toward IP-based wireless and wireline convergence and the impact that high-bandwidth data and video will have on converged solutions, Ericsson needed to have direct control over more pieces of the solution, specifically the IP edge infrastructure," Hunt indicated. "Redback, as a much smaller player, needed a strong Tier 1 partner to realize the full potential of the SmartEdge product line and to win against its mammoth competitors."

Hunt expects that Redback's SmartEdge portfolio will become a component of Ericsson's mobile and wireline solution offerings. He also sees an upside to the acquisition for Redback and its management team, all of whom will be retained by Ericsson: Redback assets should experience increased market penetration across Ericsson's integrated solutions. "With the addition of Redback, Ericsson will be in a stronger position to compete with the newly formed Alcatel-Lucent and the soon-to-be Nokia Siemens Networks for the next wave of network evolution," he indicated. Nor is that all: The acquisition also gives Ericsson a significant North American presence. In this respect, Hunt indicates, the Scandinavian telco giant could conceivably take the fight to established North American players -- such as Nortel.

"Nortel should consider being acquired by a large player and Cisco would be one of the companies of choice [because] while there is some overlap in product lines, there is much synergy as well," he said, explaining that "Cisco has routers and enterprise products and Nortel brings carrier experience, its optical portfolio and a global services component to the mix."

In the meantime, Cisco -- which has an existing partnership with Ericsson -- should continue to benefit in at least one respect. "The acquisition of Redback provides Ericsson with a strong IP edge router and subscriber management solution, but it still lacks a high-end IP core router, which it must continue to source through partnerships with Juniper or Cisco," Hunt concluded. "As the bandwidth of the IP core and edge network continues to increase as a result of video-centric traffic, the IP core will take on more significance." -- Stephen Swoyer