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Report: Lucent Looks To Buy Ascend

January 11, 1999

NEW YORK (AP) _ The Internet’s speedy intrusion into everyday matters like making a call may force telephone pioneer Lucent Technologies into paying big bucks for Ascend Communications.

Lending new credence to a very popular topic in the Wall Street rumor mill, USA Today and the Financial Times of London reported Monday that Lucent may pay as much as $16 billion in stock to acquire Ascend, a major supplier of Internet and other computer networking gear.

Both companies declined comment on the reports, which could value Ascend at more than $80 a share. Ascend’s stock rose $5.25 a share, or by more than 7 percent, to $76.68 3/4 in Nasdaq trading and has now tripled over the past year. Lucent’s shares fell $2.31 1/4, or by 2 percent, to $112.93 3/4 on the New York Stock Exchange.

The renewed speculation came as Lucent, the vaunted former Bell Labs research unit and equipment producer spun off by AT&T, announced a deal to pay $1.5 billion in stock for Kenan Systems Corp., which makes software for billing and customer service.

Ascend, based in Alameda, Calif., is one of the few true players in a field monopolized by Cisco Systems, the networking company that so far has supplied about three quarters of the nuts and bolts used to build the Internet.

While Lucent was instrumental in the adaptation of telephone lines for online data transmission, Cisco has led the charge toward providing video and audio capabilities on the Internet and computer networks.

``It’s the convergence of voice and data. The debate is what form does that convergence take: Is it voice equipment with more data capability or data equipment with more voice capability?,″ said Christin Armacost, an industry analyst at Everen Securities. For now, Cisco seems to be the biggest winner. ``It’s not as much a convergence, but a conversion of voice communications onto data networks.″

With both Internet access providers and cable television companies gearing up to provide telephone service _ AT&T announced last week that it plans to offer local calling through cable TV by next year _ Lucent stands to fall behind in a lucrative market that its technology helped make possible.

``Ascend has really good positioning in emerging growth areas of telecom equipuipment,″ said Stephen Koffler, a data networking analyst at Donaldson Lufkin & Jenrette Securities. ``If Lucent wants to stay a major supplier over the coming years and decades, they’re going to have to be heavily involved.″

While a Lucent-Ascend deal probably wouldn’t reshape the industry, the increased competition for Cisco could speed the Internet’s intrusion into everyday matters such as making telephone calls, analysts said.

Calling Lucent and Ascend a good fit, Armacost said a merger would speed up product development by fostering competition between Lucent and Cisco.

``The motive behind Lucent acquiring Ascend is clear. Lucent does not have product portfolio of data networking equipment. If you take Lucent’s product portfolio, you could pracrtically lay in Ascend and fill all the gaps,″ Armacost said, noting that the data networking industry is expected to grow 25 percent to 30 percent annually in the coming years. By contrast, Lucent’s existing business is expected are growing 8 percent to 12 percent a year, she said.

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