Motorola Cherry-Picks Terayon to Bolster its Digital Video Proposition

On April 23rd Motorola and Terayon Communication Systems announced that they have signed a definitive merger agreement, under which Motorola will acquire all of the outstanding shares of Terayon's common stock. Upon completion of the transaction in Q2 or Q3 2007, Terayon will become a wholly-owned subsidiary of Motorola and will be integrated into the Motorola Connected Home Solutions business.

Recommended Competitive Responses

► ARRIS, which in February was outbid by Ericsson for TANDBERG TV (i.e., Ericsson’s U.S. $1.4 billion bid trumped ARRIS’s $1.2 billion cash and stock offer) needs to carefully but expeditiously consider its own options for expanding its portfolio/proposition either via acquisition or through a strategic partnership with a vendor of equal or greater presence in the digital media sector. With Terayon now off the table (ARRIS is highly unlikely to counter-bid Motorola), Harmonic is the best remaining target for ARRIS.

► Cisco Systems can assert that Motorola is effectively still playing catch-up, following Cisco’s own acquisition of Scientific-Atlanta announced in Q4 2005 and closed in early 2006. Cisco can also point out that if the Terayon technology was best-of-breed, Cisco would have acquired Terayon itself.

► BigBand Networks needs to explore its own strategic options in order to generate additional market and customer traction in the digital video infrastructure market. While its recent Cuda CMTS 7.0 release enables BigBand to assert first-to-market status for DOCSIS 3.0 M-CMTS, BigBand is still a distant also-ran within the overall cable infrastructure market and needs to consider growth through merger/acquisition or hitching itself to a complementary Tier 1 partner.

► Ericsson, which like Motorola has been on an acquisition spree of its own over the last five quarters (i.e., Marconi, Redback, TANDBERG TV, Entrisphere), can highlight its acquisition of TANDBERG TV as paving the way for its success in the burgeoning digital video/IPTV markets. Ericsson can also assert that thanks to the TANDBERG TV acquisition, it is better positioned for success in this sector than chief rivals such as Alcatel-Lucent and Nokia Siemens Networks.

Starent Upgrades and Extends Portfolio with ST40

On April 16th Starent introduced its ST40 “multimedia core platform.” Supporting multiple mobile core network functions – PDSN, GGSN, SGSN, FA/HA, ASN, P-CSCF, PDG, PDIF and IPSG – the ST40 is an incremental enhancement to Starent’s ST16 platform, handling up to 15,000 calls per second, 3 million sessions or 54 million BHCA while carrying forward the company’s focus on “in-line services” and deep packet inspection.

Recommended Competitive Responses

► Cisco needs to carry forward the upgrades to its CSG platform with new PDSN/GGSN capabilities and enhancements. Leveraging a “next-gen” line card, the CSG2 promises added session capacity for applications including content examination, content charging and access control.

► Ericsson should consider a strategy bringing new applications and functionality into the J20. Ericsson has executed on its plans to become an IMS market leader. The logical extension of this leadership would be delivering IMS components within its GGSN offer, a strategy that meshes well with Ericsson’s promises to make the Redback products an edge solution for fixed and wireless services.

► Nokia Siemens Networks needs to detail its GGSN strategy more clearly. In tandem with 3GSM, the company provided insight into plans for consolidated WCDMA and GSM RAN solutions, mobile softswitching, mobile TV and IMS. Yet, it was generally quiet on how the new company would treat existing partnerships, including Siemens’ work with Cisco on GGSN products.

► Alcatel-Lucent should consider acquiring or partnering with Starent. The company’s Watercove product is not a particularly strong GGSN solution, while a lack of PDSN support leaves the company juggling multiple packet data gateway platforms. Working with Starent would support WCDMA, CDMA2000 and even WiMAX offers while playing into the company’s IMS momentum.

► Huawei and ZTE should consider acquiring or partnering with Starent. Product performance aside, China’s top two telecom vendors must contend with the fact that they’re relatively small wireless players with sprawling product lines.

Recommended End User/Customer Responses

► Mobile operators need to seek details from Starent’s PDSN, GGSN and ASN competitors in terms of plans to integrate IMS functionality into their platforms. On paper, pushing IMS capabilities out to the edge of the network makes sense in terms of session handling and scale. If so, the PDSN, GGSN or ASN is the logical aggregation and “intelligence” point. While other vendors have been more aggressive with their IMS marketing and product development, none have talked up the notion of housing IMS functionality in the packet data gateway; operators need to know what these vendors have planned, if only for deal negotiation.

► Operators seriously looking at IMS deployments need to begin investigating the value of siting IMS components nearer to the network edge – such as in the PDSN or GGSN. Beyond the obvious latency benefits, moving IMS out to the network edge assumes new network architectures and deployment models. Clearly understanding the clear costs and benefits will be critical to forming the best IMS strategy.

► Potential Starent customers need to seek details on the company’s promised support for inter-technology handoffs. Per the company, support for multiple technologies – WiMAX, WCDMA and CDMA2000 – “promotes seamless mobility through universal roaming.” Yet, while supporting multiple technologies in one box is very different from linking them together into one continuous service. Operators need to know the technology basis behind the roaming claims (mobile IP, something more?), ideally seeing working examples.

► Would-be femtocell and picocell operators need to include core network solutions as an integral part of their network solutions. While the femtocell or picocell part of the network is the ultimate touch point with the customer, the manner of integrating it into the network is key for ensuring the delivery of familiar services. Beyond pre-packaged offers, operators should also be open to specifying their own core network partners in order to develop best-of-breed solutions.