Cisco’s US$2.9 billion acquisition of Starent networks, and Tanberg’s rebuffing of their US$3 billion acquisition offer, along with speculation that this puts Polycom in play, has sent ripples through ICT infrastructure suppliers. Among the speculation:

• Acquisition of Starent means Cisco will deemphasize or exit WiMAX
• Cisco will develop an LTE RAN, Radio Access Network
• Statements from Starent President and CEO Ashraf Dahod, to head Cisco's new Mobile Internet Technology Group, that LTE is the future
• Cisco could acquire Alvarion, the leading WiMAX pure play supplier
• Polycom would be an acquisition target by H.P, Avaya, Alcatel-Lucent, or Japanese consumer electronics leaders Sony or Panasonic  

We view the early October bid for Tanberg, a leading Oslo Norway based videoconferencing leader, as having corporate culture diversion and product overlap. This makes sense to consolidate market share ahead of increased competition from both consumer electronics and integrated wireless infrastructure suppliers. However, despite well-proven M&A skills, we see more difficulty in merging of company efforts than would be typical for Cisco. As fast paced as industry developments will be, an acquisition of Tanberg may take focus and management overhead that could be better spent elsewhere.

Our first reaction to the news of the Starent acquisition was that it makes perfect sense: the product mix, corporate culture, client composition, technology leadership and direction fit nicely with where we see Cisco heading. Cisco’s vision for network demand over wireless ICT networks has outpaced the company’s product and market position. Cisco’s video and broadband studies are often referenced for their respected view, borne out by recent history that broadband demand is forecast to grow on wireless networks by about 140%. File sharing, storage and video are driving the growth in broadband, and the effect is set to pick up further as new software and devices gain momentum. 

Huawei, Motorola and Ericsson are investing heavily into 3.5G and IP video network development, which will head these companies toward increased competition for LTE and WiMAX networks. Moreover, competition will be engaged for cloud 4G/ICT converged environments that will pit wired and wireless networks into direct competition.
The speculation that Cisco will de-emphasize WiMAX is misplaced: WiMAX was not destined to become the primary next generation network for incumbent operators.  Despite some positioning to the contrary, WiMAX has had only a small chance of being picked up by incumbents as anything more than a DSL extension BB network in higher frequency spectrum. Some moves by WiMAX early on in its development may have improved the odds, but WiMAX supremacy among incumbents remained a relative long shot. However, that does not change the strategic position of WiMAX as a pathway to LTE development, IPR, and early market entry. Cisco and other integrated IP/ICT developers who have participated in WiMAX have gained by that experience.

Cisco’s involvement in IEEE 802.16m/j and WiMAX network deployments has improved the company’s overall position in ICT industry development, particularly in competition with Ericsson, who was poised to gain market share in sales of video infrastructure and services to incumbents. As the dust settles on the Starent and still pending Tanberg acquisitions, and recent product upgrades and introductions, we will need to re-evaluate forecasts for Cisco.

Starent CEO Ashraf Dahod, who will head Cisco's reorganized Mobile Internet Technology Group, points out that LTE is the direction that the bulk of packet switch and NG networks will head. Maravedis sees very little chance that WiMAX will develop momentum with incumbent operators. Rather, the NGN has a future in emerging markets and as an alternative broadband network. 

Our view of WiMAX comes from understanding the technology and markets and where this will take various wireless segments. WiMAX technology developments live on in LTE and provide an entry into converged markets that otherwise would have been missed. Broadly, WiMAX also acts as a catalyst for industry development and direction.
We had speculated that Alvarion was a candidate for acquisition by Cisco prior to their purchase of Navini. Afterward, we though the chances became remote. Recent speculation that Cisco might acquire LTE suppliers, while making strategic sense, looks less likely than internal LTE developments, which have also been rumored. If Cisco intended to acquire an LTE supplier, it might have shown its cards with a move on Nortel that would have brought forth other strengths as well.

We give some merit to speculation that Japanese consumer electronics companies may enter the M&A fray to acquire Polycom. However that turns out, we anticipate a flurry of new hardware and software announcements, including embedded wireless consumer video and communications devices that can be used effectively in video conferencing, distance learning and other video applications that once required dedicated video conferencing products.

For more information you can contact the author at robert@maravedis-bwa.com

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