Wednesday, 08 December 2021

Ericsson to acquire Vonage for $6.2bn to leverage cloud platform

by Harry Baldock, Total Telecom
Monday 22 November 21

The purchase is Ericsson’s largest ever, with the Swedish vendor aiming to use Vonage’s cloud platform to tap into the enterprise market

Today, Ericsson has announced its intention to purchase US cloud-platform company Vonage in a transaction worth around $6.2 billon.  The move represents Ericsson’s increasing efforts to shift into the enterprise business space, aiming to help these customers benefit from additional services on top of the high speeds being unlocked by 5G networks. “Imagine putting the power and capabilities of 5G, the biggest global innovation platform, at the fingertips of developers. Then back it with Vonage&rsquo…

Today, Ericsson has announced its intention to purchase US cloud-platform company Vonage in a transaction worth around $6.2 billon. 

The move represents Ericsson’s increasing efforts to shift into the enterprise business space, aiming to help these customers benefit from additional services on top of the high speeds being unlocked by 5G networks.

“Imagine putting the power and capabilities of 5G, the biggest global innovation platform, at the fingertips of developers. Then back it with Vonage’s advanced capabilities, in a world of 8 billion connected devices. Today we are making that possible,” said Börje Ekholm, President and CEO of Ericsson.

But, despite Ericsson’s positioning of the deal, this merger is not really about 5G. Vonage, which operates across sectors from healthcare to transportation, is primarily a cloud-based communications company, with its Vonage Communications Platform allowing customers to embed communications, including voice, video, and messaging, into applications and products. 

Vonage’s cloud platform currently serves around 120,000 business customers, the returns from which comprise around 80% of Vonage’s sales of $1.4 billion last year. The cloud platform also serves around one million developers, which Ericsson views as having enormous potential to drive value for enterprise customers. 

The company also offers Unified Communications as a Service (UCaas) and Contact Center as a Service (CCaaS) solutions as part of the platform.

“Vonage’s strong developer ecosystem will get access to 4G and 5G network APIs, exposed in a simple and globally unified way. This will allow them to develop new innovative global offerings,” explained Ekholm. “Communication Service Providers will be able to better monetise their investments in network infrastructure by creating new API driven revenues. Finally, businesses will benefit from the 5G performance, impacting operational performance, and share in new value coming from applications on top of the network.”

The deal has already received approval from the Vonage board and will now be subject to regulatory and shareholder approval. 

In the past couple of years, Ericsson’s focus on the enterprise communications space has been increasingly steadily. In a sense, this latest acquisition builds on Ericsson’s $1.1 billion purchase of Cradlepoint last year, a move targeting broader capitalisation on the growing IoT ecosystem. 

But while this shift into the enterprise space itself clearly has its merits, this response to the Vonage acquisition itself has been mixed by analysts. 

“Enterprises don't build contact centres, #videoconferencing or corporate #voice platforms on telcos' IMS cores, so Ericsson needs ‘proper cloud comms’ if it wants to compete vs. Cisco, Microsoft, Zoom & all the VoIP-based MSPs. (And of course, Twilio). Cloud comms and #cPaaS is more fragmented than general IaaS and hyperscalers, so is more addressable by players like Ericsson,” said industry analyst Dean Bubley of Disruptive Analysis in a LinkedIn post. “In short - if Ericsson is getting more serious about enterprise and cloud again, the acquisition makes sense.”

However, Bubley was broadly sceptical about the emphasis being placed on 5G and wireless enterprise, calling the acquisition “a misstep” in this regard. 

“Only a small fraction of enterprise UCaaS is driven by wireless networks, even if people use smartphones instead of desk phones. The value is mostly on the server side and integrations,” he said.

 

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Also in the news: 
Telenor’s $7.5 billion tie-up in Thailand
KKR targets TIM takeover for €10.8bn
INWIT and Enel team up for a greener Italy

 

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