It is clear that 5G will not be a mobile platform, but that fixed lines will be just as important as the new radio, so that services can be delivered over the best link, whether wireless or wireline, and dense fiber can provide backhaul and fronthaul for the RAN.
The need to move towards quad play services, and then to fully converged networks to support them more efficiently, has driven mobile operators to agree partnerships and mergers with their fixed-line counterparts. But the trend will affect M&A in the wider telecoms market too, as seen by the two latest rumors of big-name deals.
Nokia is reported to be in acquisition talks with Juniper Networks to bolster its fixed-line business; while fiber and cloud service provider Interoute is also up for sale, and could be a tempting asset for a mobile-oriented provider.
Even if neither of these deals comes about, the reports show how the markets’ attention is now focusing on convergence, a development which could bolster the value of companies with strong wireline offerings, after a generation in which mobile-centric was thought to be the way to go.
Nokia, indeed, decided to focus entirely on mobile broadband during its last major restructuring before it offloaded its device division and then acquired Alcatel-Lucent. The latter deal, of course, brought it firmly back into the fixed/mobile environment with ALU’s strong portfolio of switches, routers and broadband products. Now Nokia is reported, by US news service CNBC, to be preparing to bid about $16bn for network equipment maker and Cisco challenger Juniper Networks.
Nokia denied the reports, saying it was “not currently in talks with, nor is it preparing an offer for, Juniper Networks related to an acquisition of that company”. That statement removed some of the 25% gains that Juniper’s share price had enjoyed since the CNBC report, but did not end speculation that the two firms might be drawing closer.
Juniper could certainly do with a merger partner. In the industry consolidation of the past few years, it has been the bridesmaid but never the bride. Its sales and marketing arrangement with Nokia has been squeezed by the Alcatel-Lucent merger; it was been linked with Ericsson, but then the Swedish giant formed an alliance with Cisco, and has since withdrawn from the market for big purchases. And Juniper has serially lost its WiFi partners to other companies – HPE acquired Aruba, ending a deal with Juniper, and when it replaced that with a Ruckus alliance, Ruckus was snapped up by Brocade (and now by Arris – see separate item).
As enterprise networks and data centers converge with telecoms infrastructure, there are new opportunities for the corporate switch/router vendors, and all of the majors – Cisco, Huawei, HPE and Brocade (now part of Broadcom) – have been aggressively targeting the segment, which puts further pressure on Juniper, traditionally the most heavily focused on operators.
Juniper risks being a wallflower in the accelerating search for strategic partners to address the new-look carrier network market, one categorized by virtualization and software-defined networking (SDN), wireless-first access, cloud and video infrastructure, and increasingly commoditized switches and routers.
It has not stood still – it laid the foundations of an optical business with the acquisition of BTI and its products for superfast interconnections between data centers, and it has been ahead of the game in some of its SDN moves. CEO Rami Rahim has intensified the focus on physical and SDN networks while relying more heavily on partners in less fundamental areas like WLAN, and he believes in blurring the lines between enterprise and service provider portfolios as these requirements increasingly converge.
However, losing Ruckus reduced Juniper’s chances of a presence in the wireless access market, leaving it less able to challenge Cisco as an end-to-end player stretching from cloud platforms to the mobile edge.
Of course, if it were acquired by Nokia, or even formed an Ericsson/Cisco-style strategic relationship, it would gain that end-to-end play. Its strengths in switching and routing, and its moves in SDN/NFV, could potentially bolster Nokia’s platforms and help it take advantage of Ericsson’s current woes, and even get closer to Huawei’s range and depth of portfolio.
Recently, Juniper has hired a new CTO, Bikash Koley from Google, and has been trying to leapfrog Cisco by focusing on extreme automation of the end-to-end network, intent-based networking and a distributed cloud architecture. All of those would be central to Nokia’s vision of a software-defined, virtualized and fully automated 5G platform.
Over at Interoute, media reports suggest that the European network and cloud services operator is up for sale, with its owners looking for up to $2bn. Those owners are Sandoz Family Foundation (with a 70% stake), and minority stakeholders Aleph Capital and Crestview Partners, which are now reportedly looking to cash in on their investment at a point where it is in a powerful position in the hot markets of virtualized cloud and network service delivery.
The company has carved out a strong reputation in supplying communications services providers, with Telefonica being a flagship customer, as well as media firms and enterprises. It has more than 70,000 route kilometers of fiber and almost 200 data centers, but its most important asset for an acquirer would probably be its extremely advanced virtualized network and service delivery platform, which it has been developing since the start of the decade.
In its most recent financial update (for the first nine months of 2017), Interoute said it had integrated the difficult acquisition of Easynet and was seeing improving margins. Revenues were down by 1.8% year-on-year to €528m ($630m), but EBITDA earnings were up by almost 48% to €111m ($132m). The firm also achieved a net profit of €6.2m ($7.4m) compared with a loss of nearly €38m ($45m) a year earlier.
The timing of the potential sale is not just about improving results. Interoute’s owners are sure to have seen the race by telcos to snap up fiber and cloud assets to support their next generation networks and services, including 5G and telco cloud platforms. And the expertise of the Interoute team, which has developed a strong cloud services management platform, would be in high demand. The company’s CTO Matt Finnie recently boasted of his seven-year headstart in an interview with LightReading, saying that telcos could develop a virtualized, white box networked cloud system, and run it at a profit, but “it would take them at least seven years to get to that point too. We’re ahead of the market”.
However, unlike in the US, where Verizon and AT&T – and the towercos – have been running after fiber assets, in Europe, the operators are struggling with heavy levels of debt and the prospect of hefty 5G bills. A more likely source of a high-priced offer for Interoute might come from China, or another Far Eastern operator, aware of the high impact that Telstra of Australia’s acquisition of Pacnet has had on its business. LightReading suggests China’s CITIC Telecom might eye Interoute to support its ambition to build a communications link between Europe and Asia, along the so-called ‘Digital Silk Road’. It has already acquired the telecoms business of Linx Telecommunication, with data and cloud services in 14 countries via 24 points of presence (POPs), a 470-kilometer fiber network in the Baltic Sea, and network operations centers (NOCs) in Russia and Estonia.