Cisco Systems, Inc. (NASDAQ:CSCO) is eyeing the radio access market and the move would align well with Cisco's mobility portfolio and Wi-Fi expertise. This should enable Cisco to offer a comprehensive solution for service providers and support the transition to next-generation radio access networks, a market valued at $40 billion.
The logic has a rationale as the service provider-focused, licensed radio access piece is a key missing component of Cisco's much improved wireless arsenal.
The addition of radio-access services would complement Cisco Mobile Exchange framework, which provides the gateway from the radio-access network to IP networks and their value-added services.
It would also support Cisco's Radio-Access Network (RAN) optimization solution set. This technology supports the industry's accelerating migration toward IP by taking it all the way to the cell site.
Cisco's RAN set enables the operator to reduce backhaul costs, improve cell site maintenance, and support additional services that can be provisioned from this valuable asset. Backhaul and cell site maintenance represent a significant operating expense for most mobile network operators (typically 20 to 30 percent).
Moreover, carriers face many challenges as they migrate their networks toward 3G. These challenges include evaluating different radio-access technologies while dealing with constrained operating and capital expenditure budgets.
The latest $310 million acquisition of U.K-based Ubiquisys is a step in that direction. Ubiquisys is a leading provider of intelligent 3G and long-term evolution (LTE) small-cell technologies that provide seamless connectivity across mobile heterogeneous networks for service providers.
Ubiquisys makes transmitters that reduce carriers' costs and service reliability as it shifts traffic from congested towers to more targeted locations inside an office, home or public space. Moreover, the acquisition is timely as investment in this space would increase next year ! as carriers shell out more money to improve coverage in crowded areas such as stadiums and convention centers.
Cisco has been concentrating more on the mobile wireless space. In January, the company acquired Denver-based BroadHop Inc., a company that lets service providers better separate data traffic, allowing them to offer customers premium service packages with higher speeds.
Cisco also bought $475 million for Intucell Ltd., an Israel-based software company that helps mobile-network operators manage traffic more efficiently.
Cisco may enter the radio access market by adopting its tried and tested spin-in model. The strategy would be similar to the models adopted for UCS, and now Insieme.
"Given the tough economics and competitive dynamics of this market, we believe Cisco may try to disrupt this market following its tried-and-tested spin-in model i.e. funding a start-up with the option of integrating it (via an acquisition) subsequently," UBS analyst Amitabh Passi wrote in a note to clients.
As of now, it is unlikely to envision a large-scale acquisition by Cisco of one of the large incumbents to break into this market.
However, Cisco is not alone in this market as it faces formidable competitors including Ericsson, Huawei, Alcatel-Lucent, and NSN, and it is unclear to where, and how Cisco will differentiate itself at attractive profitability (consistent with Cisco's long-term margin goals).
"At this juncture, it is our initial belief that the increasing miniaturization of radios, rising software content, and cloudbased technologies may provide the kind of opening Cisco hopes to capitalize on," Paasi said.
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