IEEE ComSoc Technology Blog

The Cuban government  announced plans to expand internet access throughout the island and lower the per-hour price of Wi-Fi. Cuba plans to add Wi-Fi to 35 state-run computer centers across the island, where internet access remains tightly controlled and illegal at home for most Cubans. Cuba will also  lower the price of Wi-Fi based Internet access from $4.50 to $2 per hour.  

The Internet initiatives were announced in Juventud Rebelde, an official newspaper aimed at the island’s youth, came amid new pressures to increase Internet access as the nation edges toward normalizing diplomatic relations with the United States.  By this July, the state-run telecommunications company, Etecsa, will open 35 hot spots, mainly in parks and boulevards of cities, the company’s spokesman told Juventud Rebelde. Connection will cost just over $2 per hour, half of what it currently costs in an Internet cafe.  However, it’s unclear exactly how quickly the Cuban government will conduct the expansion and how well the connections will actually work.  

Gizmodo says:  “Since the average salary in Cuba is only about $20 a month, that’s still pretty damn expensive. Nevertheless, it’s an improvement over a couple years ago when there was just one internet cafe in Old Havana. Things have been so bad there in recent years that young Cubans have taken things into their own hands and built an elaborate mesh network to create their own thriving underground internet. They also pass internet content around via USB sticks.”

Ted Henken, a professor at Baruch College in New York who has studied social media and the Internet in Cuba, said the decision could mark a “turning point.  Their model was, ‘Nobody gets Internet,’ ” he said in a telephone interview. “Now their model is, ‘We’re going to bring prices down and expand access, but we are going to do it as a sovereign decision and at our own speed.’ ”

Nothing was announced for wireline Internet access to homes or business, probably because of very llimited  DSL depolyment throughout the island.  While the number of residential DSL Internet access lines has not been made public, that service was supposed to have been initiated last year as per this article:

 Cuba’s ETECSA to provide residential DSL services in 2014

Also refer to: 

Cuba’s WiFi access plan raises intresting questions

http://laredcubana.blogspot.com/2015/06/cubas-wifi-access-plan-raises.html

Addendum – Cuba’s Internet Infrastructure:

The country’s Internet capability was greatly boosted by the completion of an undersea fiber-optic cable from Venezuela that came online in January 2013.  Venezuela financed it, a French company built it, and Doug Madory, the guy at Dyn Research who spotted that underwater cable, says it’s got potential you haven’t even tapped: “It’s improved their connectivity to the outside world. However, the improvement of greater access to the people of Cuba, that’s still slow going.”

Authorities say Cuba must prioritize its bandwidth for uses that are deemed to benefit society, such as schools and workplaces. Critics say government prohibitions are the main obstacle to access, although the state has gradually been loosening some controls.

Cuba’s poor Internet access is a grievance increasingly shared across political lines, by entrepreneurs and computer programmers as well as journalists and ordinary citizens who want to communicate with relatives overseas.

It is a source of frustration for young people, a growing number of whom — especially in Havana — own a smartphone that they cannot use to get online. The city’s one hot spot — at the workshop of the artistKcho — is constantly packed.

Over the past two years, the government has opened dozens of Internet cafes and introduced email service for the island’s million or so cellphone users. It signaled its willingness to expand connectivity this month in a leaked report that argued that lack of Internet access was holding back the economy. The report outlined plans to get broadband — albeit slow broadband — to half of Cuban homes by 2020.

According to Wikipedia,  “The Internet in Cuba is among the most tightly controlled in the world.^[2] It is characterized by a low number of connections, limited bandwidth, censorship, and high cost.^[3] The Internet in Cuba stagnated since its introduction in the 1990s because of lack of funding, tight government restrictions, the U.S. embargo, and high costs. Starting in 2007 this situation began to slowly improve. In 2012, Cuba had an Internet penetration rate of 25.6%.^[4]“ 

 Reference:

U.S.-Cuba Rapprochement: Telecom & Internet Infrastructure is a Top Priority for the Cuban Government!

https://techblog.comsoc.org/2014/12/21/u-s-cuba-rapprochement-telecom-internet-infrastructure-is-a-top-priority-for-the-cuban-government

Introduction:

“Open networking, which leverages open source software and open hardware designs and allows anyone to innovate, is set to change networking, just as open source changed the server and OS marketplace,” said Cliff Grossner, Ph.D., research director for data center, cloud and Software Defined Networking (SDN) at IHS.  

“This move to open networking is heightening the importance of bare metal switches, as evidenced by all the vendor announcements at Interop in April. Dell is expanding its open networking portfolio with three new branded bare metal switches providing options from 1GE to 100GE Ethernet. And Citrix entered the SD-WAN market with Cloudbridge Virtual WAN Edition, which allows enterprises to create a virtualized WAN,” Grossner said.  

Open Networking/SDN Reference Models:

 Mr. Grossner and this author are collaborating on a report/article defining Open Networking Reference Architectures, Business Models, and Vendors Market Share.   We’ve identified the following reference architectures:

DATA CENTER MARKET HIGHLIGHTS:

• The global data center network equipment market-including data center Ethernet switches, application delivery controllers (ADCs) and WAN optimization appliances (WOAs)-declined 14% sequentially in 1Q15, to $2.6 billion.
• The data center Ethernet switch segment continues to grow on a year-over-year basis (+4% in 1Q15 from 1Q14); positive forces include large enterprises and the public sector.
• F5 took the #1 spot for virtual ADC appliance revenue from Citrix in 1Q15.

DATA CENTER REPORT SYNOPSIS:

 The quarterly IHS-Infonetics Data Center Network Equipment market research report tracks data center Ethernet switches, bare metal Ethernet switches, Ethernet switches sold in bundles, application delivery controllers (ADCs) and WAN optimization appliances (WOA). The research service provides worldwide and regional market size, vendor market share, forecasts through 2019, analysis and trends. Vendors tracked include A10, ALE, Arista, Array Networks, Aryaka, Barracuda, Blue Coat, Brocade, CloudGenix, Cisco, Citrix, Dell, Exinda, F5, HP, Huawei, IBM, Ipanema, Juniper, Kemp, NEC, Radware, Riverbed, Siaras, Silver Peak, Talari, VeloCloud, Viptela and others.

To purchase the report, please visit: www.infonetics.com/contact.asp

In an IHS-Infonetics report released earlier this month (June 3, 2015), Cliff forecast that the in-use software-defined networking (SDN) market (Ethernet switches and controllers) will reach $13 billion in 2019, up from $781 million in 2014, as the availability of branded bare metal switches and use of SDN by enterprises and smaller cloud service providers (CSPs) drive growth.

“The SDN market is still forming, and the top market share slots will change hands frequently, but currently the segment leaders are Dell, HP, VMware and White Box,” said Cliff Grossner, Ph.D., research director for data center, cloud and SDN at IHS.

“SDN will cross the chasm in 2016, with SDN in-use physical Ethernet switches accounting for 10 percent of Ethernet switch market revenue,” Grossner said.

SD-WAN WEBINAR: 
Join analyst Cliff Grossner June 16 at 11:00 AM ET for Adopting Software-Defined WAN for Agility and Cost Savings, an event providing recommendations for buyers of new SD-WAN products and services.

Register at: http://w.on24.com/r.htm?e=993468&s=1&k=5A40BFBD0F05E1431D43F6D4D920370A

End Note:  This author will be covering the annual Open Network Summit this week in Santa Clara, CA.  Email any questions/concerns/issues to:  [email protected]

For previous articles by this author, kindly refer to this website (https://techblog.comsoc.org/author/aweissberger/) and to http://viodi.com/category/weissberger

Ever since Verizon bought out Vodafone to take 100% ownership of Verizon Wireless, the largest U.S. wireless carrier has taken steps to divest its wireline operations to free up focus for its more luctorative wireless business.  This past March, Verizon sold its wireline operations (including FiOS) in California, Florida and Texas to Frontier Communications for $10 billion.  This May, Verizon bought AOL for $4.4 billion in cash, a deal aimed at advancing the telecom giant’s growth ambitions in mobile video and advertising.

On June 9th, the WSJ reported that Verizon’s largest union, The Communications Workers of America (CWA), claims the company is refusing to fix broken landlines.  CWA is accusing the carrier of abandoning its copper landline networks in portions of the northeastern United States.  It says that Verizon isn’t making necessary repairs and instead is pushing customers in parts of New York, Delaware, Pennsylvania, New Jersey, Maryland, Virginia, and Washington, DC. toward wireless home phone service.

CWA, which represents about 35,000 Verizon employees, announced intentions to file Freedom of Information Act (FOIA) requests to pull up data on Verizon’s maintenance of legacy networks. The dispute comes as Verizon and the union are about to enter negotiations later this month for a new contract.

“As a public utility in these states, Verizon has a duty to maintain services for all customers. But we’ve seen how the company abandons users, particularly on legacy networks, and customers across the country have noticed their service quality is plummeting,” Dennis Trainor, CWA vice president for District 1, said in a statement.

“Verizon is systematically abandoning the legacy network and as a consequence the quality of service for millions of phone customers has plummeted,” said Bob Master, CWA’s political director for the union’s northeastern region.  Mr. Master said the union’s interests are aligned with those of consumers. Many customers want to keep their copper landline phones because in the event of a power outage the lines will keep running, while wireless and fiber phone systems will stop working as soon as the batteries die, according to Mr. Master. [Of course that’s correct, because copper phone lines have power feeding from the 48v dc battery in the telco central office that runs for several hours/days after a regional power failure).

Caption:  Are copper phone lines for the birds?

Verizon spokesman Rich Young countered those remarks by saying that the CWA’s allegations are aimed at pressuring the carrier in advance of the contract negotiation talks and he denied the union’s claims.  “It’s pure nonsense to say we’re abandoning our copper networks,” Mr. Young told the WSJ.   Mr. Young said the company is investing in its copper network, and it only offers Voice Link, which delivers service over Verizon’s cellular network, as a temporary replacement while repairs are being done. About 13,000 customers have decided to keep the Voice Link service, Mr. Young said.

Spending on Verizon’s wireline network has declined. In the last year, the company invested $5.8 billion on its wirelines (copper and fiber), a 7.7% reduction from the year before. Mr. Young attributed the drop in spending not to reduced maintenance but to a slowdown in its FiOS build out.

In the wake of Hurricane Sandy, Verizon’s copper lines on parts of the East Coast were damaged. The carrier drew criticism from organizations like AARP for planning to turn off those legacy networks in favor of offering wireless Voice Link technology.

Verizon has expressed a desire to shut off its copper line system in the future in favor of cheaper wireless and higher-speed fiber network access technology. In addition to being faster and in some cases cheaper to build, those technologies face fewer regulations than services delivered over copper infrastructure. AT&T Inc. has also said it wants to eventually shut off its copper network.  That’s despite advances in DSL technology like “vectoring” which mitigates interference and thereby increases upload/download speeds.

Verizon has about 10.5 million residential landline voice customers, about half of which are on copper. In the past few years, the company has moved about 800,000 people off its copper network onto its newer, fiber-to-the-premises based FiOS access network. 

In it’s 1st Quarter 2015 earnings report, Verizon noted a 10.2% year-over-year increase in FiOS revenues with 133,000 FiOS Internet and 90,000 FiOS Video net additions. Total FiOS revenues in the 1st quarter were $3.4 billion.  Verizon has a total of 6.7 million FiOS Internet and 5.7 million FiOS Video connections at the end of the 1st quarter 2015, representing year-over-year increases of 9.4% and 7.9%, respectively.  

Clearly, Verizon is not abandoning FioS, but is not saying much about maintaining its existing copper wire plant.  It’s not correct to conclude that Verizon wants to focus soley on wireless as they see a good business in offering FiOS based triple and quadruple play service bundles to residential customers.

References:

http://www.wsj.com/articles/verizons-biggest-union-claims-carrier-isnt-fixing-broken-landlines-1433853524

http://consumerist.com/2015/06/09/telecom-union-says-verizon-is-neglecting-landlines/

http://arstechnica.com/information-technology/2014/08/why-verizon-is-trying-very-hard-to-force-fiber-on-its-customers/

CABLE BROADBAND MARKET OVERVIEW:

As MSOs continued major upgrades to their broadband networks, cable DOCSIS (Data Over Cable Service Interface Specification) channel shipments grew to 1.8 million in the first quarter of 2015 (1Q15), a 14% sequential increase and a gain of 48% from the year-ago first quarter, according to the latest CCAP, CMTS, and Edge QAM Hardware report from IHS (formerly Infonetics).

“The cable broadband market got off to a mixed start in the first quarter. Despite the first quarter typically being a slow one, DOCSIS channels increased yet again. But revenue was down due to a combination of aggressive pricing and a higher proportion of software licenses,” said Jeff Heynen, research director for broadband access and pay TV at IHS. 

CABLE BROADBAND MARKET HIGHLIGHTS:

• CCAP, CMTS, CMC and edge QAM revenue fell 7% sequentially in 1Q15, to $474 million.
• The now-dead merger between Comcast and Time Warner Cable was expected to dampen the key North American region in Q1, but despite the headwinds, the overall cable broadband market remained healthy, setting the stage for a strong 2015.
• To date, very few cable operators have deployed video QAM channels on their CCAP-capable platforms, tamping the long-term outlook for these channels.
• ARRIS dominated the cable broadband market again in 1Q15, supported in part by the early availability of its E6000 CCAP-capable product.

CABLE BROADBAND REPORT SYNOPSIS:

The quarterly IHS Infonetics CCAP, CMTS, and Edge QAM Hardware market research report tracks cable broadband subscribers and equipment including converged cable access platforms (CCAPs), cable modem termination systems (CMTSs), coaxial media converters (CMCs) and edge quadrature amplitude modulation (QAM) channels. The research service provides worldwide and regional market size, vendor market share, forecasts through 2019, analysis and trends. Vendors tracked include Arris, Casa Systems, Cisco, Ericsson, Harmonic, Huawei, Sumavision, others.

To purchase the report, please visit: www.infonetics.com/contact.asp

Charts & Reference:

https://www.ncta.com/industry-data

IHS RELATED RESEARCH:

GPON, VDSL Drive 14 Percent YoY Increase in Broadband Equipment Market: 
http://www.infonetics.com/pr/2015/1Q15-PON-FTTH-DSL-Aggregation-Highlights.asp

Telcos, Cablecos Ramp Spending on Premium Broadband CPE in Race to Gigabit:
http://www.infonetics.com/pr/2015/4Q14-Broadband-CPE-Market-Highlights.asp

Fixed Broadband Subscribers Projected to Approach 1 Billion in 2019, Led by China:
http://www.infonetics.com/pr/2015/FTTH-DSL-Cable-Subscribers-Market-Highlights.asp

Broadband Operators Reveal Ambitious Network Upgrade Plans:
http://www.infonetics.com/pr/2014/Fixed-Broadband-SP-Leadership-Survey-Highlights.asp

Dish Network, the satellite television company controlled by billionaire Charles Ergen, is in talks to acquire wireless telco T-Mobile US, according to people briefed on the matter.  T-Mobile US has a market value of $31 billion, while Dish Network is worth nearly $35 billion.  Details of the price, and the cash and stock mix, were still being worked out. Both Dish and T-Mobile declined to comment.

A merger of Dish and T-Mobile US would provide a definitive answer to what Dish plans to do with its huge wireless spectrum holdings, which Mr. Ergen has been adding to for years without revealing any clear plan for how Dish would use it. Speculation has persisted that DIsh would either build its own LTE or (true) 4G-LTE Advanced network – either on its own, or by acquiring a wireless network operator that had LTE/mobile broadband engineering expertise.

According to a Wells Fargo report, Dish’s full spectrum license collection is likely worth a total of between $40 billion and $44 billion. That figure includes Dish’s 700 MHz, AWS-4 and H Block licenses, as well as the AWS-3 licenses the company won in the FCC’s recent spectrum auction. (However, those AWS-3 licenses are somewhat in question because they are tied to Dish via the company’s two designated entities (DEs)–Northstar Wireless and SNR Wireless–which could pay around $10 billion in the auction for 702 licenses. Both regulators and Dish’s rivals have blasted Dish’s use of DEs–and the 25 percent small business discount they are to receive–as unfair).  It’s also worth noting that Dish’s spectrum portfolio could be worth as little as $28.1 billion or as much as $56.7 billion, Wells Fargo said, depending on buyers’ eagerness.

Following the close of the recent FCC AWS-3 auction, Dish commands an average of around 80 MHz of licensed spectrum nationwide, putting it just behind T-Mobile in terms of spectrum depth. Sprint leads in overall spectrum owned due to its extensive 2.5 GHz licenses, while AT&T comes in second place, Verizon comes in third, and T-Mobile comes in fourth (even though it acquired all of MetroPCS’ spectrum in May 2013).

NOTE:  Low-band spectrum can cover large geographic areas, while high-band spectrum can transmit larger amounts of data.  Therefore, buyers of licensed spectrum might only be looking for spectrum licenses that fit in with their overall network rollout strategy. The value of spectrum is directly tied to demand from actual mobile broadband users, and demand is a hard metric to calculate. But the rising value of spectrum was clearly on display during the FCC’s recent AWS-3 spectrum auction, which raised almost $45 billion in total gross bids–double even the highest forecasts before the event.

A merger would also give T-Mobile US a clear path to grow and continue its role as a market disrupter (“the uncarrier”), giving it both the spectrum and financial resources it needs to build out its mobile broadband network to cover more of the U.S. T-Mobile would be able to use Dish’s accumulated spectrum, adding more and faster broadband wireless service across the U.S. That, combined with the continuation of its industry-disruption pricing strategy, could turn T-Mobile into a real threat for Verizon and AT&T for the first time. As the proposed deal wouldn’t reduce the number of wireless carriers, regulators are likely to approve it.

Braxton Carter, T-Mobile’s chief financial officer, in March complimented Mr. Ergen’s push to accumulate unused licensed spectrum. “You look at what he is doing with some of his technologies, and that type of marriage could be very, very, very interesting, or partnership,” he said.

Implications for Real Time Mobile Video:

Finally, a merged entity would be a serious competitive threat to the combined AT&T-DirecTV merged company, because it would sell both satellite TV as well as mobile broadband/wireless voice service.  It would probably accelerate the trend toward delivery of REAL TIME MOBILE VIDEO, which both merged entities will likely pursue aggressively.

Here’s what DirecTV said about its acquisition by AT&T in a press release:

Creates Content Distribution Leader Across Mobile, Video & Broadband Platforms

• The premier pay TV brand with the best content relationships now poised to deliver video to multiple screens – mobile, TV, laptops and more – to meet consumers’ future viewing and programming preferences
• Unparalleled video content distribution scale in U.S. – nationwide mobile and video networks; broadband to cover 70 million customer locations with our broadband expansion

“DIRECTV is the premier pay TV provider in the United States and Latin America, with a high-quality customer base, the best selection of programming, the best technology for delivering and viewing high-quality video on any device and the best customer satisfaction among major U.S. cable and satellite TV providers. AT&T has a best-in-class nationwide mobile network and a high-speed broadband network that will cover 70 million customer locations with the broadband expansion enabled by this transaction.”

We can expect a very similar press release if and when the Dish/T-Mobile US deal is completed and announced.

In summary, a new Dish/T-Mobile, would be able to offer customers a full array of mobile Internet-based services along with its fast-growing “skinny-bundle” service called Sling TV.  The combined entity could provide mobile Internet, pay-TV and cell phone services resulting in a “poor man’s triple play.”  That’s because faster and more reliable wire-line broadband Internet wouldn’t be available from the new entity.   So it couldn’t justifiably compete with AT&T’s U-verse, Verizon’s FiOS, or Comcast’s Xfinity triple play.   However, we see tremendous competition in wireless only triple plays between Dish/T-Mobile and AT&T/DirecTV entities.

Reference:

https://techblog.comsoc.org/2013/04/15/dish-network-offers-to-buy-sprint-for-25-5-billion-cash-and-stock-dtt-mobile-rumored-to-be-interested-too

Introduction:

“We have seen a slowdown in top buying (economic) growth rates. So one of your options to at least generate growth on the bottom line is to do accretive deals….. This deal could mark the start of a new string of mega-mergers in the tech industry,” said Christopher Rolland of FBR &Co.  Of course, he was referring to Avago Technologies proposed $37 billion buyout of semiconductor heavy weight Broadcom.  “Money is still cheap. So those dynamics are sort of coming together to cause this consolidation,” Rolland added.

The value of a combined Avago-Broadcom would be approximately $77 billion. The new company (which is to be called Broadcom Ltd) will have annual revenue of approximately $15 billion. 

Broadcom Backgrounder:

Broadcom, based in Irvine, Calif., was founded in 1991 by Henry Samueli, PhD – an electrical engineering professor at the University of California, Los Angeles (UCLA) and Henry Nicholas III (Samueli’sPhD student) who left the company in 2003. Mr. Samueli, the owner of the Anaheim Ducks hockey team, is Broadcom’s chairman and chief technology officer. 

Broadcom’s revenues last year were nearly twice the size of Avago’s.  The acquisition would take Avago into new semiconductor markets, including cable modems, TV set-top boxes, Wi-Fi and data center switching systems.  Broadcom is by far and away the leader in Ethernet switch chips for equipment in both premises and cloud based data centers as well as telco and campus networks.

The mainstream media, including the NY Times and WSJ, incorrectly reported that Broadcom has a very large share of the mobile communications chip market.  In fact they have zero percent share of that market. The company does have a very large market share in WiFi chips, but Qualcomm’s Atheros Communications Division is closing in fast.

Broadcom acquired WiMAX chip leader Beceem Communications in 2010 for $316M, believing Beceem could transition it’s OFDMA based WiMAX technology to LTE, but that didn’t happen.  Renesas Mobile was then acquired which gave Broadcom a fully qualified LTE modem, and products. However, facing very tough competition, Broadcom ultimately shut down its cellular efforts leaving it with 0% market share in the “mobile communications” chip market. [The leader in wireless chips, especially cellular, is Qualcomm.  Three are no close competitors.]

Furthermore, Broadcom took an impairment charge of $501 million related to the NetLogic acquisition in 2013.  Not every deal works out!

Where are the Synergies?

Junko Yoshida, Chief International Correspondent for EE times wrote:

“I need to be enlightened on how this (deal) advances the companies’ technologies. How will this deal make it better for engineers at the two companies working on new products and technologies? Am I cynical in suspecting that Avago wanted Broadcom purely for the sake of getting bigger?

Where is the affinity – or any apparent good vibe – connecting Avago to Broadcom? Aren’t the “soft” factors of corporate culture at least as important for successful mergers as a momentary splash on the stock market?”

Continuing, Yoshida wrote:

“Avago’s big appetite for acquisitions is well known. But this sort of abrupt switch from one target to another suggests recklessness. Or maybe I’m not cynical at all, but naïve. After all, company M&As aren’t personal. It’s not like Avago and Broadcom are engaged to be married.

I’ve always felt a great respect for Broadcom. I’ve admired savvy business strategy, and more significantly, a technology vision led by Henry Samueli, Broadcom’s co-founder, chairman of the board, and chief technology officer.

Without Broadcom, we might well be bereft of all the Ethernet, broadband connections the company has enabled. Broadcom, like a well-oiled machine, has stayed true to its motto – “integration, integration, integration” – to dominate the digital SoC world.

I don’t think I’m alone in viewing Broadcom as the best of the best among U.S. fabless chip companies.  But this merger begs a big question: Where will Broadcom integration vision turn? Will Broadcom’s team be allowed to sustain its discipline in execution? Most important, will Henry Samueli stay?”

Quotes from Broadcom & Avago CEOs:

“This is a landmark day in the history of the industry,” said Scott McGregor, Broadcom’s 58-year-old CEO, during a conference call after the deal was announced last Thursday.

  “Today’s announcement marks the combination of the unparalleled engineering prowess of Broadcom with Avago’s heritage of technology from HP, AT&T (Microelectronics), and LSI Logic in a landmark transaction for the semiconductor industry,” Avago CEO Hock Tan (62 years old) said in a statement. “Together with Broadcom, we intend to bring the combined company to a level of profitability consistent with Avago’s long-term target model.”

Financing the Deal:

Avago Technologies plans to finance its $37 billion purchase of Broadcom, with $15.5 billion of new syndicated term loans.  Financing will come from Bank of America Merrill Lynch, Credit Suisse, Deutsche Bank, Barclays, and Citigroup, sources said.  The issuer expects to refinance $6.5 billion of existing debt facilities and raise $9 billion of new money. A $500 million revolver would be undrawn at closing. The transaction would leverage Avago at roughly 2.7x, giving full credit for $750 million of synergies. Net of $1.3 billion of cash on hand, adjusted leverage would fall to 2.5x, according to an investor presentation.

Avago Built on Debt Fueled Takeovers: 

Avago has used takeovers and mergers as an engine for economic growth and increased market capitalization. Some analysts have compared the company to Valeant Pharmaceuticals, a drug maker whose meteoric growth has been powered by serial acquisitions.   Avago’s relatively short company history is truly amazing and one for the record books. 

• In 2005, private equity firms KKR and Silver Lake Partners acquired Agilent’s Semiconductor Products Group (SPG) for $2.66 billion.  (Agilent was spun off by HP).  In December of that year, Avago Technologies was established, creating the world’s largest privately held independent semiconductor company. 
• From 2007 to its IPO on August 6. 2009, Avago acquired the fiber optic component and Bulk Acoustic Wave businesses from Infineon (formerly Siemens Microelectronics) and then Nemicon to complement its motion control product line.  When AVGO went public in 2009, it seemed like a modest player in the semiconductor industry with a market value of just $3.5 billion.  But few anticipated its future growth through debt funded deal making.
• Since Avago became a public company in 2009, its management team has pursued a half-dozen acquisitions. The biggest of which was its $6.6 billion takeover of the LSI Corporation (formerly LSI Logic), a networking and storage chip manufacturer, in late 2013. It was funded by a $4.6 billion leveraged loan which was ~70% of the price paid for LSI.  The purchase price for LSI was more than six times Avago’s cash on hand at the time.
• Note that LSI had previously acquired Agere (formerly AT&T Microelectronics, then part of Lucent Technologies, IPO in March 2001) which at one time had a market cap of > $10 billion!
• Early this year, Avago struck a $606 million takeover deal for Emulex. 
• Aiding Avago’s acquisitions are several rare factors, including a roughly 5% tax rate that comes from being based in Singapore and ready access to low-cost debt financing.  Note that Singapore is the company’s headquarters ONLY for tax reasons.  Neither the original company nor any of its acquisitions were ever based there.

Meteoric Rise in Avago Stock Price:

AVGO went public August 6, 2009 at $15 a share. The stock closed Friday at $148.07.  That’s an increase of 987.13% and triple its value of December 2013.   Evidently, Avago’s aggressive acquisition strategy has paid off big time for its shareholders.

For more financial implications of this merger, please read this blog post by the Curmudgeon and Victor Sperandeo.

Addendum:  Intel Buys Altera for close to $17B

On Monday, June 1st, Intel announced it would buy FPGA chip maker  Altera Corp. for $16.7B – the costliest in the Santa Clara, CA, company’s 47-year history. Some Wall Street analysts question whether Intel paid too much.

http://www.wsj.com/articles/intel-ceo-accelerates-shift-from-pcs-1433201084

The latest IHS Infonetics Service Provider Capex, Revenue, and Capex by Equipment Type report notes that worldwide telecom service provider capital expenditures (CAPEX) grew 2.9%  year-over-year in 2014, to US$352 billion.

CAPEX REPORT HIGHLIGHTS:

• In 2014, expenditures for every type of equipment except TDM voice slowly grew or stayed flat from the year prior.
• Europe posted 3.3% year-over-year growth in carrier CAPEX, mainly fueled by Deutsche Telekom and Vodafone.
• China more than offset spending declines in Japan and South Korea to drive Asia Pacific’s capex growth to 4.2 percent year-over-year in 2014.
• Meanwhile, a World Cup hangover slowed telecom spending in Latin America.
• IHS forecasts worldwide telecom capex to total a cumulative US$1.8 trillion in the 5 years from 2015 to 2019.

“We’re entering a new era of desynchronized cycles in telecom spending. Regions and economic powers have their own investment agendas and pace, and this will result in overall flat-to-low-single-digit capex growth through 2019 unless a major event occurs,” said Stéphane Téral, research director for mobile infrastructure and carrier economics at IHS. 

CAPEX REPORT SYNOPSIS:

IHS Infonetics’ biannual service provider CAPEX report provides worldwide and regional market size, forecasts through 2019, analysis, and trends for revenue and capex by service provider type (incumbent, competitive, cable operators, independent wireless, satellite) and CAPEX by equipment type (broadband aggregation equipment; wireless infrastructure; IP routers and CES; optical equipment; IP and TDM voice infrastructure; video infrastructure; all other telecom/datacom network equipment; and CPE non-telecom/datacom network equipment).

To purchase the report, please visit: www.infonetics.com/contact.asp

RELATED RESEARCH

• Europe Exiting Optical Network Spending Slump
• Hotspot 2.0 and Virtualization Key to New Revenue for WiFi Carriers
• Carrier Voice-over-IP Market Off to Strong Start in 2015, Led by U.S.
• Mobile Operators Using EDGE, HSPA+ to Improve User Experience on Road to LTE
• Big Jump in Carrier WiFi Gear Expected as 802.11ac and Hotspot 2.0 Accelerate

From Dell’Oro Group’s Carrier Economics report:  Dollar Strength to Wipe Out $20 B in Telecom Capex During 2015:

“We have not made any major changes to our constant currency Capex projections for 2015 and continue to expect the market will grow at a low-single-digit pace in 2015 driven primarily by China and Europe,” said Stefan Pongratz, Dell’Oro Group Carrier Analyst. “But in U.S. Dollar terms, assuming rates remain at current levels, the strengthening U.S. Dollar will unequivocally impact Telecom Capex, and we have revised our 2015 Capex in U.S. Dollar terms downward rather significantly to adjust for currency fluctuations,” continued Pongratz.

AT&T says by 2020, 75% of its network will be software-centric, with the use of network functions virtualization and software defined networking (SDN) technologies.  Note however, that AT&T’s definition of SDN has nothing to do with the original definition which includes strict separation of data & control planes, centralized controller with a global view of the network (not just adjacent network elements), use of Open Flow API/protocol as the Southbound API from the control to data planes.  AT&T is NOT a member of the Open Network Foundation that is specifying SDN architectures and protocols.

As part of AT&T’s ongoing Domain 2.0 effort, about 40% of its strategic IT applications have been migrated to the cloud, with an ongoing process of one application to be migrated a day. According to the company, that move has enabled greater operational efficiencies over applications running on dedicated hardware.  In addition, about 400,000 processor cores are running the cloud IT apps and operating 50% more efficiently than on dedicated hardware, the company claims.

AT&T expects future networking deployments to further reduce capex over the next five years. “This is a big opportunity for change and will allow us to look at our network model in a different way,” said Susan Johnson, senior vice president of global supply chain at AT&T.

IHS Infonetics just reported that global optical network hardware spending was up 5% in the first quarter of 2015 (1Q15) from year ago as signs of improvement continued to emerge in EMEA (Europe, the Middle East and Africa) and as Japan prepares for a large-scale 100G rollout.

OPTICAL NETWORK MARKET HIGHLIGHTS:

• The worldwide optical network equipment market, including WDM and SONET/SDH, totaled $2.7 billion in 1Q15.
• With 2 consecutive quarters of year-over-year growth under its belt, Europe appears to be exiting an optical slump; results in the region are better than the headline numbers due to the strengthening dollar.
• The company outperforming in Europe is Alcatel-Lucent, with a steady trend of rising revenue.
• WDM revenue rose 9 percent globally in 1Q15 from the previous quarter, putting up an 11th consecutive quarter of growth.
• 100G spending is rapidly increasing worldwide and comprises around a quarter of total WDM revenue, which is flowing primarily into the hands of Alcatel Lucent, Ciena, Cisco, Huawei and Infinera.
• Internet content providers (ICPs) continue to surge and presently account for roughly one-tenth of North American optical spending, though volatility in future expenditures is likely.

Anaylst Quote:

“The focus in optical networking is now shifting to the metro as new products targeted specifically at this market are announced and scheduled for production. This will allow datacenters and traditional service providers to more rapidly adopt metro 100G in a significant way,” said Andrew Schmitt, research director for carrier transport networking at IHS.  

“Meanwhile, the service provider market is fracturing into two factions-the telcos and webcos-each with specific optical transport needs and requirements. Webco spending is growing faster right now, so vendors are repositioning to align roadmaps and marketing with their needs,” Schmitt said.

OPTICAL NETWORK REPORT SYNOPSIS:

The quarterly IHS Infonetics Optical Network Hardware market research report tracks and forecasts the global optical equipment market. The research service provides worldwide and regional market size, vendor market share, forecasts through 2019, analysis and trends for metro and long haul SONET/SDH and WDM equipment, Ethernet optical ports, SONET/SDH/POS ports and WDM ports. Vendors tracked include Adtran, Adva, Alcatel-Lucent, Ciena, Cisco, Coriant, Cyan, ECI, Fujitsu, Huawei, Infinera, NEC, Padtec, Transmode, TE Connectivity, Tyco Telecom, ZTE, others.

To purchase the report, please visit: www.infonetics.com/contact.asp

RELATED RESEARCH:

Packet-Optical Transport Deployments Slower Than Anticipated:
http://www.infonetics.com/pr/2015/Packet-Optical-Survey-Highlights.asp

In Data Center Optics Market, 40G Transceivers Ubiquitous, 100G Accelerating: 
http://www.infonetics.com/pr/2015/2H14-Data-Center-Optics-Mkt-Highlights.asp

In Telecom Optics Market, 100G Transceiver Growth Suppressed Until 2016: 
http://www.infonetics.com/pr/2015/2H14-Data-Center-Optics-Mkt-Highlights.asp 

OTN Switch Spending Up 40 Percent from a Year Ago: 
http://www.infonetics.com/market-research-report-highlights.asp 

About IHS (www.ihs.com):

IHS (NYSE: IHS) is the leading source of insight, analytics and expertise in critical areas that shape today’s business landscape. Businesses and governments in more than 150 countries around the globe rely on the comprehensive content, expert independent analysis and flexible delivery methods of IHS to make high-impact decisions and develop strategies with speed and confidence. IHS has been in business since 1959 and became a publicly traded company on the New York Stock Exchange in 2005. Headquartered in Englewood, Colorado, USA, IHS is committed to sustainable, profitable growth and employs about 8,800 people in 32 countries around the world.

In a related report, Dell’Oro Group said the Optical Transport equipment market reached $2.8 billion in the first quarter of 2015.  The majority of the optical market’s growth was due to the continuous need for more wavelength division multiplexers (WDM). In the quarter, the total WDM market, which comprises 76 percent of the optical market’s revenue, grew five percent year-over-year.

“One of the main drivers for WDM equipment demand is the interconnection of data centers, which are on the rise as users increase their consumption of content such as video,” said Jimmy Yu, Vice President of Optical Transport research at Dell’Oro Group. “Of greater interest in the optical market is the changing customer type, as more of these data center interconnects (DCI) are purchased directly by the enterprise rather than as a service from an operator. We believe approximately 12 percent of WDM revenues in the first quarter were generated from data center interconnection, purchased directly by enterprise customers,” added Mr. Yu.

About the Report  
The Dell’Oro Group Optical Transport Quarterly Report offers complete, in-depth coverage of the market with tables covering manufacturers’ revenue, average selling prices, unit shipments (by speed including 40 Gbps, 100 Gbps, and >100 Gbps).  The report tracks DWDM long haul terrestrial, WDM metro, multiservice multiplexers (SONET/SDH), optical switch, and optical packet platforms. 

To purchase this report, call Matt Dear at +1.650.622.9400 x233 or email [email protected].

CenturyLink will tap dark fiber in 17 states to expand gigabit broadband, benefiting approximately 500,000 small and midsize businesses (SMBs). The fiber-to-the-premises expansion will enable CenturyLink to broaden service options for SMBs and will involve the introduction of cloud-based business services from Microsoft such as Office 365.

CenturyLink’s symmetrical gigabit fiber service will now reach nearly 490,000 small to medium-size business (SMB) locations in 17 states with the availability of IT solutions including IP networking, voice over IP (VoIP) and cloud capabilities.  The 3rd largest U.S. telco is launching service to SMB customers in parts of Iowa, Idaho, North Carolina, Ohio and Wisconsin and expanding its availability in nine of the 12 states where CenturyLink initially deployed gigabit fiber for business customers in 16 cities, which it announced in August of last year.

The nine states include Arizona, Colorado, Florida, Minnesota, Nevada, New Mexico, Oregon, Utah and Washington, and the company also provides 1G-bps speeds in parts of Missouri, Nebraska and South Dakota.

In addition to its 1G-bps business service, CenturyLink offers 1G-bps speeds to residential customers in 11 cities.

“Our consultative sales team invests in understanding a customer’s business priorities in order to tailor IT recommendations that will address the customer’s needs while alleviating technology pain points,” Shirish Lal, CenturyLink’s chief marketing officer, told eWEEK. “Our local service and support is also welcomed by SMB customers who don’t always have the option of working with technology providers that have feet on the ground in their communities.”  Lal noted CenturyLink is not making pricing details available due to the vast range of options and features available within the bundled solutions the company designed for SMB customers using gigabit fiber.

“Pricing is convenient and predictable as a low monthly price per employee user, which for CenturyLink’s managed solutions includes providing, managing and maintaining all equipment, hardware and software,” Lal said.

“We’re really trying to gain market share and we’re trying to build bandwidth capabilities,” said Valerie Dodd, vice president and general manager of Century Link in New Mexico. “There is fiber here. There already is fiber.”

Ahmen! Hello Google Fiber and AT&T GigaFiber- you’ve got competition now!

Separately, CenturyLink recently opened a Technology Center of Excellence in Monroe, Louisiana

CenturyLink officially opens Technology Center of Excellence | CenturyLink

References:

http://www.eweek.com/small-business/centurylink-expands-gigabit-fiber-services-for-small-businesses.html

http://www.bizjournals.com/albuquerque/blog/bizventures/2015/05/centurylink-rolls-out-new-high-speed-fiber-service.html

http://www.lightreading.com/gigabit/fttx/centurylink-goes-beyond-gig-for-smbs/d/d-id/715777

http://www.thenewsstar.com/story/news/local/2015/05/20/post-talks-transformation-centurylink-shareholders/27654579/

CenturyLink’s 1 Gbps service is now available to more than 3,400 business locations in Ohio

May 18, 2015 – Company expands gigabit broadband service for an additional 5,500 business locations in Ogden, Orem and nearby communities

http://linked338in.weebly.com/

Read my coverage of the May 15th TiECon 2015 Grand Keynote with 2 representatives of CenturyLink:

->Gary Gauba and Aamir Hussein (EVP &CTO)

by David Dixon of FBR Inc (edited by Alan J Weissberger):

Verizon (VZ) announced today that it has entered into agreement to acquire AOL Inc. for $50 per share(17.4% premium to yesterday’s closing price of $42.59) for total transaction price of $4.4 billion. The transaction will take form of a tender offer followed a merger, with AOL becoming a wholly owned subsidiary of Verizon upon completion. The acquisition will be financed through a combination of commercial paper and cash on hand. Management expects the deal to close in summer 2015. (More details on the deal in the WSJ article below)

While we (FBR) do not believe the deal itself is significant, it does show a growing emphasis by VZ to attempt to gain a disproportionate share of millennial viewership which is trending increasingly to over-the-top (OTT) biased and mobile away from linear TV.

Key points:

• VZ expects to leverage its Internet of Things (IoT) platform to deliver AOL content.
• AOL’s primary assets include subscription business, a portfolio of global content brands (Huffington Post, TechCrunch, Engadget, MAKERS, MapQuest, Moviefone, and AOL.com), programmatic advertising platforms, and millennial-focused OTT original video content.
• Content remains king but is shifting from Public Internet to Private Networks.
• As recent industry trend suggests, it is becoming increasingly important for telcos to expand beyond traditional businesses and leverage their differentiated platforms, including mobile and distributed compute platforms (a net new build well underway).
• Architecture shifts toward deeply distributed datacenter nodes leveraging docker technology and Broadcom’s 100Gbps merchant silicon are key.
• Simplifying the metro network allows for a superior class of service platform relative to CDNbased public internet traffic because access networks can now tap directly into the content serverin regional datacenters.
• Taking a page from AT&T and DIRECTV, an AOL acquisition will provide VZ with end-to-end content distribution across VZ’s mobile, video, and broadband platforms.
• Furthermore, it provides VZ with cross selling opportunities including bundling of AOL’s contentwith VZ’s wireless, broadband and TV services.

WSJ Article: http://www.wsj.com/articles/verizon-to-buy-aol-for-4-4-billion-1431428458

Verizon Communications Inc. agreed to buy AOL Inc. in a $4.4 billion deal aimed at advancing the telecom giant’s growth ambitions in mobile video and advertising.

The all-cash deal values AOL at $50 a share, a 23% premium over the company’s three-month volume-weighted average price. AOL shares rose 18% in morning trading to $50.18. Verizon shares fell 1.7% to $48.98.

The acquisition would give Verizon, which has set its sights on entering the crowded online video marketplace, access to advanced technology AOL has developed for selling ads and delivering high-quality Web video.

“Certainly the subscription business and the content businesses are very noteworthy. For us, the principal interest was around the ad tech platform,” said Verizon’s president of operations, John Stratton, at a Jefferies investor conference early Tuesday.

The U.S. wireless business has matured in recent years, leaving carriers like Verizon,  AT&T Inc. and Sprint Corp. increasingly fighting to steal market share from one another.

Offering digital video-over-wireless connections represents a growth avenue in coming years for Verizon, which last year brought in $127 billion in revenue and profit of $12 billion.

Verizon has said it plans to launch a video service focused on mobile devices this summer. The company has offered few details, but last month Chief Financial Officer Fran Shammo said the service would offer a mix of paid, free and ad-supported content and wouldn’t try to replicate traditional TV.

The service will feature shorter snippets rather than 30 or 60 minute shows. It also could include multicast programming—a sort of broadcast service that uses cellular airwaves—for delivering live content like sports and concerts, along with on-demand viewing.

That description has left a lot of room for interpretation, and some analysts briefed on the service recently by the company said they came away unimpressed. Verizon, however, like rival AT&T, believes video will be a primary driver of demand for its wireless network in the years ahead.

“This will have nothing to do with what you do in your house,” Mr. Shammo said in an interview on April 22. “Millennials consume news in ways you can’t even see on the TV.”

Verizon already has relationships with many media providers because of its FiOS TV service, which is available in 5.6 million U.S. households. And it has shown prowess in mobile video already, including through a partnership with the NFL that allows it to stream some games over phones.

A year ago, Verizon agreed to pay what people familiar with the matter said was around $200 million to buy Intel Corp.’s fledgling OnCue Internet video service—an asset that underpins the telecom company’s upcoming offering.

For AOL, the sale is the latest chapter for a company that has redefined itself in recent years as a significant player in digital media and marketing, after originating as a pioneer in the dial-up Web access business and being involved in one of the most disastrous corporate mergers ever.

AOL eventually grew to more than 20 million dial-up subscribers and consummated a $183 billion megamerger with Time Warner Inc.in 2000. The company’s value dissipated quickly after the dot-com bust and ultimatelyTime Warner spun out AOL in 2009.

Under the leadership of Tim Armstrong, a former Google Inc. executive who took over as chief executive of AOL in 2009, the company has invested heavily in ad technology—including an automated, or “programmatic” platform that allows marketers to bid for inventory electronically. In 2013, AOL purchased Adap.tv, an “exchange” that connects buyers and sellers of online video advertising.  Mr. Armstrong will continue to lead AOL’s operations, the companies said.

AOL also built a stable of content including online news sites such as Huffington Post, TechCrunch and Engadget. And it has even produced original Web series. It recently launched “Connected,” a documentary-style series in which the subjects film themselves.

In an interview, Mr. Armstrong said the combination of Verizon and AOL would “create what I think is the largest mobile and video business in the United States.” Mr. Armstrong said he believed that AOL would now not only be able to compete with digital advertising giants Google and Facebook Inc., but it also will be able to play in the rapidly emerging connected TV and mobile media and advertising sectors.

“This gives us a real seat at the table for the future of media and technology,” he said.

The deal is expected to close this summer, pending regulatory approvals. Verizon expects to finance the acquisition through cash on hand and commercial paper.

MARKET TALK

Verizon Takes on Heavyweights in Online Ad Sales. So…why AOL? Verizon’s news release runs through an alphabet soup of acronyms–LTE, OTT, IoT (seriously, Internet of things?). None of which sounds very convincing, especially after Wall Street analysts came away from a recent briefing by the company about its video strategy pretty skeptical. One thing is clear, though. AOL has a really good advertising platform. That means VZ will effectively be competing with tech heavyweights like Google, Facebook and Yahoo in the fast-growing online video-ad market. ([email protected])

Verizon Aiming for Younger Eyes with AOL Deal. Everyone’s into video now. AT&T is on the cusp of a $49B deal for DirecTV that will make it the country’s biggest pay-TV distributor. Verizon is taking a different—and cheaper—tack with its $4.4 billion deal for AOL. The diverging strategies of the two telcos seem pretty clear at first glance. Verizon is going after millennials. AT&T has its eye on their parents. ([email protected])

Market Talk is a stream of real-time news and market analysis that is available on Dow Jones Newswires

Analyst’s Opinions:

Verizon’s $4.4 billion acquisition plans for AOL will help the prospective parent company gain additional online advertising tools as well as a stream of fresh and varied content, both of which can help attract more users in the face of growing online advertising competition from Google, Facebook and others.

That’s the take of four industry analysts who shared their insights with eWEEK about Verizon’s May 12 announcement that it is buying AOL to bolster its content and online advertising capabilities.

“Overall, I think it will be a good deal for both companies,” said Charles King, principal analyst of Pund-IT. “My feeling is that the premise everyone is following these days is that mobile technology is going to represent the path of future business opportunities” and that online advertising acquisitions like the Verizon AOL deal can help strengthen such ties.  

“We’re seeing a lot of companies, like the recent Yahoo-Microsoft search deal, as a good example, creating opportunities to allow them to become alternatives to Google,” said King. “Google and Facebook are the two big players here. There are other players who want a piece of that action, and if they don’t move soon, there’s a good chance that they will be frozen out.”

The Verizon AOL deal is a good example of such synergies, he said. “And the relatively modest cost for the deal is indicative that this may not be the only such deal that Verizon does.”  For AOL, “it’s hard to think of a stronger, better parent for AOL to have,” King explained. “Verizon is certainly the 700-pound gorilla of the wireless world.”

For Verizon, the key benefit of the purchase is acquiring AOL’s established online advertising platform, even more than the company’s content, Andrew Frank, an analyst with Gartner, told eWEEK in an email reply.

“I believe this signals a significant shift in the structure of the entertainment and advertising distribution market—it’s clear that digital distribution is the future of all media, and that carriers seek to be more than just ‘dumb pipes’ in this new order of things,” wrote Frank.

A key benefit from the deal for Verizon is that the company “has an opportunity to re-energize its local marketing value proposition, which has flagged with the decline of the Yellow Pages business,” by offering a range of advertising services alongside its communication services, wrote Frank. And at the same time, AOL’s video platforms could help Verizon “take a leadership position in providing the next generation of automated, targeted TV and online video advertising services,” while also further leveraging its mobile footprint “to become a significant player in the fast-growing market for mobile advertising and content services,” he explained.

Frank said he also believes that AOL’s ONE ad tech services, which allow marketers to build their ad campaigns one time across all screen sizes and device types, “have at least as much potential value to Verizon as its content business, even though AOL’s market penetration in this area has not been as significant as its competitors,” he wrote. “Verizon has an opportunity to create more separation between AOL’s content and advertising businesses, which could benefit its ad tech offerings, which are substantial, by removing any appearance of being too close to its publishing business.”

One thing that could interfere with the deal, he said, is if government regulators see the proposed acquisition “as a call for more rules or reforms around the role distributors can play, especially when it comes to data and privacy.”

Patrick Moorhead, principal analyst of Moor Insights & Strategy, told eWEEK he sees the merger “reflecting the challenges that carriers are having in differentiating themselves through their ‘pipes,'” which are becoming more and more a commodity rather than unique delivery mechanisms to their customers. That means that “carriers need something else to provide stickiness” so that their customers and prospective customers keep coming back to them online, he said. “The benefits to this could be that it gives customers more reasons to stick with Verizon, which could result in improved margins.” 

On the other hand, said Moorhead, “I’m a bit skeptical right now, given the kind of content AOL has. They have assembled some interesting Web news content, but outside of that, I’m not seeing popular, exclusive movie, TV show or music content.” 

In addition, the AOL brand today “is nowhere even near as relevant as they were in 1995,” when it was a huge online player, he said. “AOL [back then] was a bit like Google and Facebook are today.” 

Another analyst, Rob Enderle, principal of Enderle Group, is more skeptical of Verizon’s move and isn’t so sure that the carrier will get as much out of the deal as the company thinks it will.

“With Google entering the carrier space as a [mobile virtual network operator] and T-Mobile  getting ever more aggressive in their moves to take [market] share, Verizon is looking for an edge and thinks content is that edge,” said Enderle. But to make it all work, “they need a critical mass of content and AOL alone won’t get them there, suggesting other acquisitions in the future or that this will fail.”

At the same time, if Verizon uses the AOL content providers to heavily promote Verizon, “these publications run the risk of becoming annoying, or worse, untrusted and will lose whatever value they started with,” said Enderle. “I think this showcases that Verizon is scared to death of what Google and T-Mobile are doing but really have no good idea what to do about it so they are rolling the dice and hoping content can change the battlefield.”

AOL Fits Verizon’s Over-the-Top Content Streaming Future

John Stratton, president of operations for Verizon Communications Inc., spoke at a Jefferies global investment banking conference in Miami on May 12, shortly after the deal was announced and said that the merger with AOL “is a very beautiful complement to the foundation that we’ve been building for several years in digital media services,” according to a transcript of the event.

One area where the merger will show promise is in Verizon’s transition to over-the-top delivery of curated video services to users over existing channels, said Stratton. “For us, the principal interest was around the ad tech platform that [AOL chairman and CEO] Tim Armstrong and his team has done a really terrific job building. We really like the technology a lot and we think of it as a key enabler for us as we begin to generate revenue and value above the network layer. So we’ve talked a lot about our over-the-top video ambitions and this is for us a very important cornerstone enabler as part of that broader strategy,” he said.

For AOL, which merged in 2001 with cable company Time Warner, the latest Verizon acquisition proposal has similar risks to the earlier merger, which was slated at the time to reinvigorate both AOL and Time Warner, but left both sides wanting, said Enderle. “The Time Warner merger comes to mind here in that it failed because the cultures of the two entities were just too different,” he said. “Verizon is more like Time Warner than it is like AOL, suggesting that problem will recur.”

The Verizon AOL deal, which had been rumored earlier this year, will bring together the largest U.S. mobile carrier and the AOL video and print content network, including the AOL Huffington Post Media Group.

“Verizon’s vision is to provide customers with a premium digital experience based on a global multi-screen network platform,” Lowell McAdam, Verizon’s chairman and CEO, said in a May 12 statement. “This acquisition supports our strategy to provide a cross-screen connection for consumers, creators and advertisers to deliver that premium customer experience.”

The deal allows Verizon to buy AOL for $50 per share, with AOL becoming a wholly owned subsidiary of Verizon when it is completed, the companies said. The transaction, which is expected to close this summer, is subject to customary regulatory approvals and closing conditions.

AOL began originally in 1985 as an online communications service called Q-Link, when the company was originally known as Quantum Computer Services. Quantum launched its first instant messaging service in 1989 and introduced the “You’ve got mail!” announcement that became a core identity of the company, which was renamed AOL, or America Online, in 1991.

Large media acquisitions like this one are increasingly common today as companies seek more ways of attracting new customers with increased content that users find valuable. Competitors, including Facebook, are also on the move constantly to find new sources of content that can help them stay one step ahead of competing content and advertising networks.

In March, a report surfaced saying that The New York Times, BuzzFeed and National Geographic, among others, are planning to launch a test program to host their content on Facebook, allowing users to read the latest news and feature articles without leaving the social network. Such moves help content sites such as Facebook remain “sticky” and important for users.

Web portals, including AOL, Yahoo, Google and others, have been following similar strategies to remain relevant in a fast-changing online and mobile-centric world so they can grow and sustain their audiences.