Instead, operators have been building a bottom-up content strategy based on data center tools, servers, and server-side middleware. CMS tools like those of ExtendMedia are very close to being the binding point between the service layer and the data center, and thus Cisco has little more to do before it would have a complete solution.

For example, ExtendMedia manages metadata and asset distribution to CDNs, which is a very small step from the network itself. This could be huge for Cisco, which has already been winning early deals in the content space because of its Unified Computing System (UCS) approach. This is being portrayed as an IPTV strategy, but we think ExtendMedia’s platform could also be used to manage more traditional VoD assets, TV Everywhere, and even pure-play OTT media.

The reason this could be very important is that Sterling is still a major player in e-commerce and EDI and is a professional services company in the same space. Transactions between companies and the support of inter-company (B2B) activity is a fertile space for launching an enterprise cloud initiative, in our view.

In many cases, EDI was handled independently of other IT and network activities, which is how Sterling got its start. That it has remained separate makes it easier for the EDI sector to adopt cloud principles. We think IBM sees clouds in the deal and not just B2B. Another interesting thing about this deal is that Sterling was owned by AT&T, which we would think would have wanted the company for the same reason IBM does.

The question here is whether CenturyTel, which is at least more like a real telecom company than Qwest was in the bubble era, can make something of a symbiosis here. Qwest’s profit margin is much lower than CenturyTel’s margins, and the territory isn’t a super prospect for near-term exploitation of opportunity. Still, the move creates a real third competitor in the US telco world, which probably wasn’t possible any other way.

The story is that the growth in the future will come from business services, but we think that unless it plans to get into cloud computing services or something at a higher layer, Level 3’s experience shows that there’s not much room for enterprise growth.

T-Mobile is a valuable property and has been considered for a spin-off or sale for some time as its German parent tries to contend with the slippery slopes of the EU telecom world. Regulators in the EU have been at odds with those in Germany (and with DT) on wireline policy, and the EU mobile market is getting increasingly competitive and regulated. In contrast, the T-Mobile operation is benefitting from U.S. smartphone trends. We’ve heard that there have been very tentative talks with Sprint.

We’re not hearing that there’s much interest in blocking the deal at the FTC level, though, so while there may be some dancing that takes place around specific terms and conditions, it’s not likely there would be anything large enough to break the two up. User information is likely to be “federated” among players in the future as much as it is today (remember buying lists of buyers?), and with or without AdMob, Google is going to be the competitive giant in online advertising and related fields.

We don’t doubt that expanding TAM will help a lot, but we’re not sure whether Cisco’s going to be able to get much contribution from the recovery. Our surveys still show buyers are likely to hold back on spending in the first half of 2010, and that over time, there will be considerable pricing pressure on Cisco from competition in the data center market.

All this suggests that Cisco will have to continue to bank on TAM growth, and eventually that means M&A and management diversion. We are particularly interested in what Cisco decides to do in the service layer, where competitors Juniper and Alcatel-Lucent have already launched strategies.

There are still questions about Sprint’s viability, which is what has German markets upset. We think this might be at least the beginnings of a good deal, although how it would fare with regulators is much harder to predict. T-Mobile and Sprint are both too small to be effective competitors, but any loss of market players might spook both the FCC and the FTC.