According to research done by Sandvine Inc., there are more than 1,100 VOIP service providers around the world – ranging from large telcos and cablecos to local “mom and pop” operations and free services from firms such as Skype. Sandvine came up with this eye-catching statistic after analyzing data traffic moving across its global network of ISP customer sites, which account for more than 20 million broadband subscribers worldwide. Sandvine, which provides a variety of services to ISPs such as traffic management technology, said the growth of VOIP traffic means there will be serious quality of service challenges to broadband service providers. “The failure or success of VoIP offerings depends on the level of QoE that a service provider can achieve and sustain, so network managers must determine very quickly how QoE can best be quantified and ensured,” Sadvine opined in a press release.
Om Malik makes an excellent point that if you assume there will be three million VOIP subscribers in the U.S. by the end of 2005, and that the cablecos and Vonage will have two million customers, it leaves hundreds of VOIP SPs battling it out for the rest. Yikes!
For people not familar with Sandvine, its founders started a company in Waterloo, Ont. called Pixstream Inc., which was acquired for nearly US$400-million in 2000. Four months later, Cisco closed Pixstream as part of a corporate restructuring that saw the elimination of 8,000 employees. It was a strange move given Pixstream was originally only looking for a small investment from Cisco but the deal expanded when Cisco made it clear it wanted the whole kit and kaboodle.

I'm starting to get a better idea why there is a lack of VOIP IPOs – before a company gets to go through the process, it gets snapped up. The latest “victim” is Sipura Technology Inc., which makes VOIP adaptors (a.k.a ATAs). It has accepted a US$68 million cash and options deal from Cisco, which will integrate Sipura into its Linksys SOHO division. This deal isn't a surprise given Sipura's founders also started Komodo Technology, which was acquired by Cisco in mid-2000 for US$175-million. When Jan Fandrianto and Dr. Sam Sin left Cisco to start Sipura, Cisco struggled in the ATA business. As a result, buying Sipura now makes complete sense if Cisco wants to stay in the game. Let's see how long Frandrianto and Sin stick around this time.
This deals comes on the heels of Juniper Networks buying Kagoor Networks for $67.5 million last month. Kagoor had sales last year of $5-million.
One day, it would be nice to see a VOIP IPO but maybe the capital markets landscape isn't friendly enough these days. Or perhaps small companies are troubled by the cost of being publicly-traded given the demaands of Sarbanes-Oxley. Maybe Vonage will be the IPO guinea pig later this year – although I believe it will be acquired before that will happen.

Reports about VOIP traffic being blocked by network operators are becoming more common in wake of Telmex customers complaining their telephony service is being degraded. In the United Arab Emirates, Internet users are complaining they have been unable to access Skype.com to buy SkypeOut minutes. The culprit seems to be Etisalat, the UAE's only ISP. In the U.S., there have been reports that Vonage's service is being blocked by Clearwire, while Madison River was fined $15K by the FCC after Vonage filed a complaint. In Canada, the major broadband operators have promised the CRTC they will not engage in this kind of nefarious activity.
Earlier this month, Vonage CEO Jeff Citron said he wants a broadband bill of rights to give consumers the right to access any service or application they want. While it is a self-serving approach, he makes a very good point about a troubling situation.

As part of its strategic appetite for more U.S. government business, Nortel is spending US$448 million to buy an IT services firm, PEC Solutions Inc. “Nortel is playing to win….,” said Nortel CEO Bill Owens, who appears to have made this phrase a corporate mantra given how often it has appeared in press releases recently. PEC makes it money by selling consulting and system integration services to homeland security, law enforcement, intelligence, defense and civilian agencies. In 2004, PEC had profits of $16.4 million on sales of $202.7 million but its profitability has declined for the past two years. Nortel's willingness to snag PEC is reflected in the sweet premium it is offering. Nortel is offering $15.50 a share for PEC, which closed yesterday at $11.31 on Nasdaq.
It is an interesting deal for a couple reasons: one, it is focused on services rather than technology. As competition in the equipment market becomes more intense, services are now an important differentiator. Huawei, for example, can sell inexpensive equipment but it has a hard time matching blue-chip suppliers when it comes to servicing clients. While this is a logical move for Nortel, it stll has some technology holes to fill, particularly in the router and IP market. There are rumors the Neptune router may not make its official debut until later this year, while a partnership with Avici Systems appears to be struggling given Avici's troubles.

Solace Systems, which has developed a router for carriers that lets them deliver the IP-based traffic of corporate customers to the right place at the right time, has raised a whack of cash from a blue-chip list of investors. The group includes entrepreneur Terry Matthews, EdgeStone Capital Partners and Ontario Teachers' Pension Fund Private Capital. The Ottawa-based company did not, however, unveil how much money it had raised – citing competitive reasons. But one could speculate it was at least $20-million given this is a round focused on sales and marketing rather than R&D. The big money tends to pour in when customers and revenue are materializing. Solace believes it's only direct competitor is Cisco Systems, which makes one think Solace is perfectly positioned for a takeover offer from a Nortel or Alcatel.

Telco equipment vendors looking for good news will be buoyed to hear spending by European ILECs, CLECs and wireless service providers are expected to rise 9% this year, according to Infonetics Research. There will be aggressive spending on access aggregation equipment, IP/MPLS routers and voice equipment. While 9% may not seem like a big increase, it's large – relatively speaking – given the low-single digit growth and negative growth seen from 2001 to 2003. Infonetics said that European SPs are now spending 13% of revenue on capex, and this ratio will continue through 2005.