Cisco Deal Deflates Alcatel

Cisco (CSCO) landed AT&T (T) as a customer for key Net infrastructure, dealing a big blow to Alcatel-Lucent (ALU) and Juniper (JNPR).

Cisco said Monday that AT&T has chosen its carrier routing system, or CRS-1 equipment, to upgrade the telecom company's Internet backbone in 25 major cities. These so-called core routers manage huge volumes of traffic at major network junction points.

The deal with the largest U.S. telco advances Cisco's dominance as the leading Internet equipment supplier and hands some unwelcome news to rival Juniper.

But for Alcatel-Lucent, the failure to land the AT&T deal marks yet another painful setback on its jarring post-merger path.

"This is pretty dramatic," says Telecom Pragmatics analyst Sam Greenholtz. "This is bad news for Alcatel-Lucent's core router business and continues a pattern we've seen with them."

When it was still known as SBC, AT&T picked Alcatel-Lucent to be its primary equipment vendor. It was a sweeping victory and solid endorsement for the big Paris gearmaker, giving it a lock on a range of products to sell and many years' worth of network maintenance revenue.

But Alcatel-Lucent stumbled mightily in the past two years as network spending slowed and new products failed to catch on. In October, the company announced a management shakeup and another round of layoffs as it posted its third consecutive quarterly loss.