An Ignoble Experiment

Cisco is going reduce its headcount again, announcing that it will cut 6,000 jobs due to slumping sales of its core routing and switching products and slower-than-expected growth in emerging markets.

This is the third time the vendor has had to reduce its headcount in recent years. In August 2013, it announced that it would lay off 4,000 workers. Earlier, in 2011, it planned to cut 11,000 employees from its roster.

Cisco's CEO and Chairman John Chambers attributed the job cuts to challenges in emerging markets, particularly in China and Brazil, where sales have slowed and it is facing more competition from vendors such as Huawei. Product orders in China dipped 23 percent, while Brazil dropped 13 percent.

"Unfortunately, as we look out, we don't see emerging markets growth returning for several quarters and believe it could get worse," said Chambers during a call with analysts, reports Reuters.

However, the vendor did see gains in the United States, where orders grew 5 percent year-over-year. U.S. commercial and enterprise customer bookings grew 17 and 16 percent, respectively.

Meanwhile, in Europe Cisco saw revenues stabilize. The UK market grew 6 percent year-over-year, while Germany grew 16 percent during the same period with growth in both the commercial and enterprise segments.

From an overall product revenue perspective, Cisco's router and switching declined 7 percent and 4 percent year-over-year, respectively, due to slower adoption of its new products. Alternatively, data centers revenues rose 30 percent, and security sector revenues rose 29 percent.

Cisco posted a smaller-than-expected 0.5 percent decline in fiscal fourth-quarter revenue to $12.4 billion. Financial analysts polled by Thomson Reuters I/B/E/S forecast total revenues of $12.1 billion.

Shares of Cisco were listed at $24.60, down 60 cents or 2.40 percent, in Thursday morning trading on the Nasdaq stock exchange.

For more:
- see the earnings release
- Reuters has this article

Special report: Wireline telecom earnings in the second quarter of 2014

Read more about: second quarter earnings 2014
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2. Adtran says European service provider consolidation will benefit its international expansion

By Sean Buckley

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Adtran is finding that the European telecom market's recent spate of mergers and acquisitions could have a beneficial effect on its pursuit of new international revenues, said an executive during its Connect event at its headquarters in Huntsville, Ala.

Scheiterer

Eduard Scheiterer, senior vice president and managing director, International Markets for Adtran, called out the merger and acquisition moves being made by Deutsche Telekom and Vodafone as potential targets to enhance its presence in the European region.

"Despite the regional differences, there's one common trend in most areas of Europe, which is consolidation," Scheiterer said. "Deutsche Telekom is enlarging their footprint, while Vodafone and Telefonica are following the same strategy."

Deutsche Telekom, according to reports that emerged in late-January, has made a bid to acquire the remaining piece it does not own in Greece's OTE phone company that's currently held by the Greek government. Its proposed move is to diversify its holdings by offering a mix of traditional wireline, wireless and Internet services.

One of the challenges with Deutsche Telekom is how it manages the network activities of its various European subsidiaries.

"Deutsche Telekom has various difficulties," Scheiterer said. "On one hand you don't want to steer these companies directly because you want to measure them on profitability. On the other hand it's clear that you want to come with one single network strategy because otherwise you don't gain anything."

Besides its M&A activity, Adtran and other industry watchers are keeping a close eye on the German incumbent telco's TeraStream initiative, which is based on a cloud-enabled IP-based architecture.

No less aggressive is Vodafone, which joined with its Greek business partner Wind to make a bid for Forthnet, one of Greece's largest paid TV providers in terms of subscribers.

If Vodafone is successful in acquiring Forthnet, Adtran sees it as a potential entry to gain influence inside the larger parent.

"We can assume that Forthnet will become part of Vodafone," Scheiterer said. "Being the sole supplier for Forthnet, I consider this as a big opportunity looking at consolidation hoping that I get a bigger share of the Vodafone group."

Thus far, Adtran's move to establish a greater presence in the international telecom market is paying off.

A key piece of the company's international strategy was its purchase of Nokia Siemens Networks' broadband access division in late 2011.

Before purchasing NSN's assets, Adtran was not a well-known player in the international arena. Since making that purchase, it has continued to ramp up its international game. While the United States is still the dominant geographic region with $97 million in revenues, Adtran's second-quarter 2014 international segment revenues were $79 million, up from $54.3 million in the first quarter.

Read more about: Deutsche Telekom, Broadband Access
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3. Frontier sees Wi-Fi as key to opening new business service revenue opportunities

By Sean Buckley

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Frontier Communications may not be a traditional wireless player, but the telco revealed during Adtran's Connect event in Huntsville, Ala., that it is seeing a growing demand to provide Wi-Fi services to local businesses.

Its recent win to wire the American Tobacco Campus in Durham, N.C., with Wi-Fi is an example of this trend.

Built on the former Lucky Strike tobacco plant, the campus is unique in that its 75 companies have their own Wi-Fi access points. It also includes a baseball stadium for the local Bulls minor league team and an outdoor concert amphitheater.

While the initial deal is focused on providing Wi-Fi, it's also a three-year deal that could enable it to upsell additional services to each of the campus' tenants.

"This is a three-year, nearly half a million dollar deal so it makes this customer very, very sticky and also opens a lot of other opportunities for us," said Dennis Bloss, VP and GM/North Carolina for Frontier Communications. "It also opens up a lot of other opportunities for us and drives ARPU in our traditional services because we're providing Gigabit redundant connectivity to this campus to drive this Wi-Fi network."

Bloss added that it could add new service opportunities, including traditional phone systems or even fiber-based services.

"This solidifies the relationship with the customer and makes that revenue stream go beyond the three-year contract," Bloss said. "It also opens up other opportunities for us, whether it be phone systems or other things to do with this customer, including we're likely to do a fiber to the prem solution on this campus for the businesses to compete against the cable provider."

While he could not cite specific other potential customers, Bloss said that they are seeing interest from a number of minor league teams across its soon-to-be 28-state footprint.

"In the venue space in the 27 states, and the soon-to-be 28 states we operate in, we're getting interest from other minor league teams," Bloss said. "Certainly if you're able to do this kind of venue with 11,000 connections simultaneous on this campus, we're getting a lot of interest from other players in the community."

Perhaps not surprisingly, there were a number of technical and business challenges that Frontier had to overcome to make the service work properly.

One of the initial issues it had to deal with was in showing businesses that resided in the campus how to monetize the Wi-Fi investment.

"I think the differentiating factor I learned is if you can take a solution to any sized customer, whether it is a Mom and Pop sandwich shop or a large venue like this, and show them how to monetize the investment, I think we can go against our competitors that have some businesses today and present a unique solution," Bloss said.

On the technical side, the issue was how Frontier would manage all of the 75 companies, with their own access points, by working with Adtran's Blue Socket division.

What's more, the service provider controls the 1 Gbps backhaul capacity with a fiber-based connection that's only two blocks from its central office.

"When we started looking at this, at any one point we could see more than 50 access points, especially on the 2.4 GHz space and almost the same battle with the 5 GHz band," Bloss said. "The space was very full so we had a coverage and interference concern, which drove the design of the network, but then also in the stadium they wanted 8,000 of the 9,000 the spectators that attend games to be online."

From a broader business opportunity perspective, Frontier is finding success in bundling Wi-Fi with other services such as cloud and managed router services for its small to medium business (SMB) customers. Despite seeing an overall dip in second-quarter business revenues, the service provider said that Wi-Fi and Ethernet represent new growth areas in the business segment.

Besides serving traditional businesses, the company is keen to cash in on how local schools will use Wi-Fi to enable students to use electronic e-readers inside the classroom, for example.

In particular, the FCC's recent E-Rate ruling to allocate $2 billion over the next two years to equip more schools and libraries with Wi-Fi connections could drive new opportunities to pursue in local school districts.

"With the upcoming E-Rate program, which will provide funding for Wi-Fi deployments in schools, this is a tremendous opportunity to take this to another level and put solutions in there," Bloss said.

Read more about: WiFi, Frontier Communications
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4. Cross River Fiber gets snapped up by Ridgemont Equity Partners

By Sean Buckley

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Ridgemont Equity Partners is cashing in on the emerging dark fiber opportunity by reaching a deal to acquire Cross River Fiber.

After meeting customary regulatory closing conditions, the two companies expect the deal to close in the fourth quarter of 2014.

Neither Cross River Fiber nor Ridgemont revealed the financial terms of the purchase.

While Cross River Fiber may have a new parent, the day-to-day operations of the company will remain unchanged.

Under the terms of the agreement, Cross River Fiber's management team will retain a large ownership stake in the company and continue to operate in their current roles at the Summit, N.J., headquarters.

Ridgemont said that Cross River CEO Vincenzo Clemente and the existing management team "will partner with Ridgemont to drive the next phase of the company's growth."

One of the benefits of the acquisition for Cross River is it will gain more financial backing to pursue the expansion of its dark fiber network into new markets to satisfy the needs of its customers in the financial, carrier, education, health care and enterprise sectors.

Over the past two years, the service provider has been expanding its network reach across New Jersey to cash in on the growing need from the financial community for low latency services and the health care industry.

When the acquisition closes, Webster Bank and CoBank will provide debt financing to support the transaction as well as future growth.

While Cross River Fiber is the latest service provider to be purchased by a private equity firm, it is not alone. In 2010, Nautic Partners and Ridgemont Equity Partners sold Fibertech $500 million to Court Square, for example.

For more:
- see the release

Read more about: New Jersey, Private Equity
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5. Cincinnati Bell adds ESPN's SEC Network to its Fioptics TV channel roster

By Sean Buckley

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