Networking Expertise Added To Lucents Cable Solution

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Lucent Technologies bolstered its lineup of cable-operator
services with its acquisition of data-networking consultant International Network Services
last week.

The buyout of the Sunnyvale, Calif.-based company for about
$3.7 billion in stock dovetails with the strategy Lucent announced at the National Show
earlier this year of offering cable operators end-to-end packet-telephony solutions based
on Internet-protocol platforms.

A key element of that plan was Lucent's
"NetCare" program, which provides a suite of services for MSOs that are planning
to integrate next-generation communications products such as telephony and high-speed data
over cable. Those services include network planning and design, installation, operations,
administration and support.

"Strengthening the service business is particularly
important for a vertically integrated company like Lucent, which can also sell the breadth
of its product offering," PaineWebber Research telecommunications-equipment analyst
Walt Piecyk said.

Eight-year-old INS billed itself as the world's
largest publicly traded provider of network-consulting, design and integration services --
a resume that complements strengths Lucent already believes it has in the back end of
networks, such as installation, maintenance, remote diagnostics and monitoring.

"INS bolsters our NetCare capabilities on the front
end, meaning in the design, planning and integration of networks," Lucent spokesman
Doug Broad said.

The bulk of INS' business has been outside of cable,
supporting such Fortune 1000 telcos as AT&T Corp., MCI WorldCom Inc. and Sprint
Communications Co.; hardware and software giants Microsoft Corp., Cisco Systems Inc. and
Compaq Computer Corp.; and financial institution First Union Corp.

But the company also has done significant work with top
MSOs, including MediaOne Group Inc. and the former Tele-Communications Inc. (now AT&T
Broadband & Internet Services), according to director of strategic marketing Jeff
Kaplan. INS helped to design and build MediaOne's Boston-area network-operations
center, for example.

"Our part is to help them build out their
data-networking capabilities and deliver some of the 'New World' services
they've been provisioning," Kaplan said. "We've already been behind
the scenes helping them to do a variety of things -- select technologies, plan and design
networks, implement projects and even build and staff centers to manage those
capabilities."

The company has significant experience with IP integration
-- providing both services and software to help manage IP networks -- that fits into
Lucent's cable strategy.

Lucent unveiled a multifaceted plan in June to re-enter the
cable business by focusing on IP-telephony solutions, rather than fishing for business in
the circuit-switched phone platform that it believes will eventually be supplanted by IP.

Lucent executives recalled that the company exited its
digital-set-top-box-development business three years ago, after having provided equipment
to such operators as Cablevision Systems Corp. and Time Warner Cable's Full Service
Network.

The company also claims the first introduction of laser
technology, sold through Antec Corp., for creating cable-system fiber nodes.

Lucent executive vice president of strategy and business
development Pat Russo said in a recent interview that the company concluded at that time
that the market did not yet have the scale to support a player like Lucent.

"We began looking at it again when things changed
dramatically," she said. "With AT&T's commitment to cable and with the
evolution of the service-provider market both in North America and the world, the cable
infrastructure has been validated as a viable broadband-access vehicle where you can
really bundle services."

To attack the market, Lucent said in June that it would
work with Motorola Inc. to provide end-to-end IP-telephony-over-cable systems targeting
the top six MSOs.

While Motorola provides its standards-based cable modems
and cable routers, Lucent is offering its "PathStar" access server, plus support
services such as billing, customer care and order management from its Kenan Systems Corp.
unit and network services through NetCare.

Russo said Lucent has already shipped its first trial
system, which an unidentified MSO is testing in conjunction with its own switching
facility and hybrid fiber-coaxial plant.

"We are committed to being a solutions provider in
this space," Russo said. "When you are, this means you have to be able to bring
together the systems, the software and the services that really help our customers to
deliver the services they want to deliver. That's a very different approach than
providing systems, or a system into a network."

She added, "It isn't the easiest way to get into
this space, but it leverages what we do and what the customers want."

Lucent has pulled the trigger on a string of major
acquisitions over the past year to expand its overall data-networking capabilities,
completing a $24 billion deal this summer for Ascend Communications Inc., along with a
$972 million buyout of Nexabit Networks.

In its latest deal, Lucent agreed to pay 0.8473 of its
shares for each outstanding share of INS. The companies expect to close the merger by the
end of this year. INS president John Drew will become head of NetCare, which will absorb
INS' 2,200 employees.

The INS deal also represents a competitive volley against
networking giant and Lucent rival Cisco Systems Inc., a major client of INS and holder of
7.8 percent of its stock.

Cisco itself has opted for partnerships on the services
side, announcing a $1 billion investment in KPMG International's Internet-consulting
arm last week.

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