Sept. 28 (Bloomberg) -- Cisco Systems Inc., the world's largest maker of computer-networking equipment, will sell 180,000 phones that transmit phone calls over the Internet to Bank of America Corp., the third-biggest U.S. bank by assets.

Bank of America, based in Charlotte, North Carolina, will replace desk phones in 5,800 offices and branches in 29 states and Washington, as well as 362 switches that direct call traffic, Bank of America and San Jose, California-based Cisco said in a statement. Financial terms weren't disclosed.

Cisco Chief Executive John Chambers, 55, has said products for sending calls the same way e-mail travels over the Internet may be his next $1 billion-a-year business. Cisco trailed Avaya Inc. last quarter in the $726 million market for Internet-phone equipment, Synergy Research Group said.

The sale to Bank of America ``suggests some customers are going to be inclined to do a wholesale replacement'' of existing phone equipment, said Erik Suppiger, who follows Cisco for Pacific Growth Equities in San Francisco and rates Cisco stock ``equal weight.'' Typically, companies convert to Internet-phone products more gradually, he said.

Boeing Co. said in July it plans to buy Cisco Internet-based phones for operations employing 150,000 people.

Avaya, based in Basking Ridge, New Jersey, had 24 percent of the Internet-phone equipment market in the second quarter, compared with Cisco's 23.4 percent, according to Scottsdale, Arizona-based Synergy.

Bank of America, the third-largest U.S. bank by assets, is replacing switches from several suppliers, said Craig Hinkley, the bank's senior vice president of network architecture. He didn't name the suppliers. Running phone calls over an IP network is cheaper than maintaining existing phone switches, he said. Hinkley declined to say how much the bank expects to save.

Upgrades

Bank of America will begin using the Cisco equipment to carry actual phone calls in branches in the first quarter and will extend the technology to its headquarters and other offices in the second quarter, Hinkley said. The financial services company has 177,986 employees, according to its Web site.

Electronic Data Systems Corp., which is based in Plano, Texas, served as a consultant for Bank of America. Electronic Data, the world's second-largest seller of computer services, chose Cisco after a 14-month review, Hinkley said.

Cisco has said companies can reduce expenses with Internet calling by using the same set of equipment to handle calls and data, and by reducing the number of phone lines leased from phone companies. The products also cut costs for moving employees' work stations, analysts have said.

Bank of America is eliminating 12,000 jobs and reducing more than $1 billion in costs after its $48 billion acquisition of FleetBoston Financial Corp. in April. The company also has spent money to upgrade its Web site and modernize bank branches.

Shares of Cisco dropped 36 cents to $18.04 in Nasdaq Stock Market composite trading yesterday. They have fallen 26 percent this year.

To contact the reporter on this story: Tiernan Ray in New York tray2@bloomberg.net

Last Updated: September 28, 2004 00:10 EDT