Press Release Archive

Key Cisco acquisition of Scientific Atlanta heralds migration of video to IP-based networks

February 27, 2006

by Charles Waltner, News@Cisco

To further its goal of converging all communications media onto the network infrastructure that runs the Internet, Cisco Systems had to do some converging of its own. On November 18 last year, Cisco announced its intent to acquire Scientific Atlanta, Lawrenceville, Ga. Today, the merger became official with final approvals from key governmental authorities.

Scientific Atlanta is best known for its cable TV set-top boxes, having shipped more than 20 million digital boxes to date, but the company also has unmatched expertise and an industry-leading array of products for transporting video all the way from the broadcast studio to the home TV. "Others have pieces of the pie but only Scientific Atlanta has the ability to build complete video networks," says Deb Mielke, managing partner at Treillage Network Strategies, a telecommunications industry consultancy. Combined with Cisco's expertise in Internet protocol (IP) networking, the two companies offer unparalleled resources for assisting telecommunications service providers as they transition to a new era for the industry.

Scientific Atlanta, which Cisco acquired for $43 a share totaling $6.8 billion, is one of the largest acquisitions in Cisco's history. With nearly $2 billion in revenue and 7,600 employees, Scientific Atlanta includes such companies as Comcast Corp., Cablevision Systems Corp., Time Warner Cable Inc. and AT&T Corp. as its key customers. Jim McDonald, president and CEO of Scientific Atlanta, will continue to lead the organization and will report to Mike Volpi, senior vice president of Cisco's Routing Technology group.

While Cisco leads the industry in IP networking for data and voice, Cisco's Volpi says Scientific Atlanta has the specialized expertise necessary for running video over large-scale networks. "Video makes extreme demands on communications infrastructures and is 10-fold more complex to manage than other media, thanks to its huge bandwidth appetite and unforgiving requirements for flawless signal management," Volpi says. "While we could have eventually worked out all these problems on our own, Scientific Atlanta will make it possible to develop key technologies much more quickly."

Telecommunications service providers, such as cable operators and telephone companies, are more than ready to take advantage of what the duo can do. "Everyone accepts that all communications are moving to IP networks. It's just a matter of how to do it," Mielke says. "Many organizations still have huge investments in older technologies, but they know that in order to survive they need help in finding the most effective way to transition to a single, IP-based network for running all their communications services."

Certainly, the acquisition is a big move for Cisco during tumultuous times for telecommunications companies worldwide. Players within the industry are battling one another as IP technology breaks down the barriers between telephone, cable, cellular, satellite, and other previously discrete communications systems.

Michael Harney, Scientific Atlanta's corporate senior vice president and president of its subscriber network sector, says Scientific Atlanta joined Cisco because of these historic changes. Harney says his company had a very healthy business with a five-year outlook for double-digit growth, but both industry consolidation and the need by telecommunications service providers to offer a "quadruple play" of voice, video, data, and wireless services prompted the move.

The company considered partnering to expand its offerings but decided merging with Cisco would be its best option. "We think our video expertise is best-in-class, a true A+, but Cisco provides the perfect complement for expanding our capabilities," Harney says. "Scientific Atlanta was opportunity-rich before our merger with Cisco. Now we have even more opportunities. It will be a challenge to decide where to focus most, but that's a good problem to have."

Cisco will also boost Scientific Atlanta in international markets. The company did not have extensive business operations outside of North America, but Cisco has well-developed sales and support channels worldwide.

Volpi says Cisco and Scientific Atlanta were required by regulators to delay developing strategic plans until final approval, so Cisco has not worked out all details of how the two companies will merge. But the new entity will focus on three key markets: integrated multimedia services for cable operators, pure IP-based video capable networks for major telephone companies, and innovations for the "digital home" via Cisco's Linksys division. Beyond the transmission of video signals, telecommunications organizations will also look to Cisco and Scientific Atlanta to help with a whole host of ways to improve how their networks operate, from consumer services for such things as video-on-demand to back-office billing. "Our job will be to simplify the complexities of delivering and using multimedia entertainment for both service providers and their customers," Volpi says.

Over time, IP technology will allow communications companies to consolidate their different operations onto one network. "Our customers have a keen interest in building next-generation networks," Harney says. "But when and how they do that will be different for different kinds of service providers."

Cable operators such as Comcast and Time Warner Cable, for example, need to upgrade their existing networks to offer multimedia services that go beyond their core TV business. And traditional phone companies such as Verizon Communications Inc. and AT&T need brand new IP multimedia networks to move beyond the falling revenues from their basic telephone services.

Despite the myriad of new opportunities now available to Scientific Atlanta, Harney emphasized that they will not distract his organization from continuing the same quality of service that has made it so successful. "Our customers tell us they like the way we do business with them," Harney says. "And we plan to keep it that way."

Harney says Scientific Atlanta is particularly excited about working with Cisco's Linksys division to build the "digital home." Cisco wants to integrate Scientific Atlanta's set-top box with its Linksys brand of home networking products, including wired and wireless routers and modems. By using the set-top box as the central control point for multimedia content, Cisco hopes to create a simplified environment for running a new contingent of multimedia applications in the home. A Cisco-powered network, for example, could wirelessly transmit digitally recorded TV shows from a set-top box to handheld devices for viewing anywhere in or near a house.

Volpi says even with Scientific Atlanta's expertise, the combined entity still has many challenges ahead as the company shifts from simply creating products for transporting communications signals to building large-scale systems that manage the delivery of those signals for specific uses. But the multimedia ball is now squarely in Cisco's court. Combined with Scientific Atlanta, the company has by far the most resources in the industry to complete the final stage of the digital revolution.

"It will be an interesting next five years," Volpi says.

Charles Waltner is a freelance journalist in Oakland, Calif.