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Lucent, Ascend work on future strategy

With only one remaining federal hurdle before their merger is approved, executives from Lucent Technologies and Ascend Communications are working to iron out a strategy for their $22 billion marriage.

LAS VEGAS--With only one remaining federal hurdle before their merger is approved, executives from Lucent Technologies and Ascend Communications are working to iron out a strategy for their $22 billion marriage.

The close of the merger, expected next month, will be followed by high-profile events on both sides of the country. The deal signals a new era in the networking business in which smaller firms will increasingly operate under the shadow of giants such as Lucent, Nortel Networks, and Cisco Systems.

In advance of final approval, details are emerging of just how the company's technology will be integrated and what kind of market strategy the combined firm will take. Executives are looking at broadband access devices and the corporate networking market, in particular.

In an interview with CNET News.com, Karyn Mashima, vice president of Lucent's data networking systems division, said the combination of Lucent's data networking and Ascend's strength with Internet Service Providers (ISP) will allow the combined firm to directly compete in the corporate networking market.

That business, a recent addition for Lucent following a series of acquisitions, is experiencing a $750 million annual run-rate, according to the executive.

"I think together with the Ascend acquisition we have a good portfolio [but] it's not complete," said Mashima, who added that the company plans to continue its acquisition strategy to fill those gaps.

Changing landscape
The Lucent-Ascend combination comes amid increasing competition in the networking business--as well as an increase in the size of the players. Nortel's acquisition last year of the former Bay Networks was one of the first indications that size and scope will become increasingly serious factors in the market.

For their part, Cisco executives continued to pound an "old world" versus "new world" theme here, stressing the need to let go of older technologies such as the circuit-based switching business that are cash cows for Lucent and Nortel. Cisco's heritage is in the data and Internet world--though it now has moved on to compete for telecommunications carrier dollars.

But Lucent executives dispute the notion that a choice needs to be made. "It's the world--This is it," said Mashima. "One size does not fit all."

Technology on tap
Lucent will soon unveil a new line of Internet access devices for the so-called network edge that include high-end routing functions and a number of management features covering policies, bandwidth, and support for voice traffic. "We have development in that area," Mashima said.

The devices would likely compete with Cisco's main router push, though the market for routers has slowed in recent years.

Those devices would fit into a hole in Ascend's portfolio--a company that has never had a large presence in the routing market. But the true promise of the merger lies in Ascend's ISP focus. As well, both companies have articulated a strategy to round out each other's strengths in broadband access devices.

Ascend has long-focused on digital subscriber line (DSL) technology, but indicated it will enter the market for cable-based "head-end" equipment, a type of device that connects and manages a segment of a cable network. Kurt Bauer, vice president of product marketing for access switching for Ascend, said the company would test the equipment later this year.

The Lucent-Ascend combination also promises to speed adoption of technologies that allow carriers and ISPs to provide voice, video, and data traffic across a single network, the over-arching trend in the networking industry that has served as a catalyst for the sector's consolidation.