Tuesday, 13 October 2009

Cisco Wants a Piece of the LTE Market

Cisco Systems announced today its second multibillion dollar deal this month: a definitive agreement to acquire Starent Networks for about $2.9 billion. The buyout comes on the heels of Cisco's roughly $3 billion buyout of videoconferencing leader Tandberg announced just under 2 weeks ago

Starent makes products that manage access from 2.5G, 3G and LTE networks to a operator's packet core network. Starent's products are deployed in CDMA2000 (1X, EV-DO), UMTS/HSPA, LTE, Wi-Fi, and WiMAX networks.

Cisco has a significant investment in WiMAX, having bought Navini Networks in 2007 for $330 million, and winning a supply contract with Clearwire earlier this year. Lately, however, Cisco's been making overtures to address the LTE market. This is undoubtedly because almost all of the main tier 1 operators have committed themselves to LTE and they have much deeper pockets that the smaller or greenfield operators have to spend. Verizon and AT&T have already made public their plans to adopt LTE over mobile WiMAX.

Cisco claims that its maneuvers are "access agnostic" rather than a hedge on an earlier bet that may not pay off expected dividends. That may be where Starent fits in, its products have been deployed by over 100 mobile operators in 45 countries. And this is probably a good move for Starent too. One of the problems Starent has had is market reach, Cisco should be an enabler for Starent to take its technology global.

Under terms of the agreement, Cisco will pay $35 per share in cash in exchange for each share of Starent Networks and assume outstanding equity awards for an aggregate purchase price of approximately $2.9 billion. The acquisition has been approved by the boards of directors of both companies. The acquisition is expected to close during the first half of calendar year 2010; however, the close date is subject to customary closing conditions and regulatory reviews. Prior to the close, Cisco and Starent will continue to operate as separate companies.

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