Arris Eyes Telco Market with Agreement to Buy BigBand Networks
Arris agreed to buy BigBand Networks for about $53 million, after factoring out the cash BigBand has on its balance sheet, the companies said Tuesday. The inventor and leading vendor of the cable industry’s switched digital video technology, BigBand has Verizon and AT&T as large customers, executives of the combining companies said on a conference call with analysts. They said that broader customer base was part of what enticed Arris into the transaction. More than 30 percent of BigBand’s sales come from phone companies, while broadband equipment vendor Arris sells almost entirely to the cable industry, the companies said.
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"The technologies of cable and telco have been merging for some time, and we've been looking for opportunities where we could apply our technological know-how … in other markets,” said Arris CEO Bob Stanzione. Arris’s cable industry customers don’t seem to mind the vendor seeking to sell products to their competitors, he said. “So far, the feedback I've gotten from our current customers has been extremely positive."
BigBand’s technology could also help Arris improve and create products around its IP home gateway device and market them to both cable and telco operators, said Bruce McClelland, president of Arris’s broadband communications systems division. “The concept of a home gateway … applies in both network architectures,” he said. For now, Arris’s gateway is a largely cable-centric device in that it has an embedded DOCSIS modem, he said. “But I think that will be part of the longer-term strategy."
BigBand’s research and development into edge-of-the-network video processing and caching could help Arris’s gateway product, McClelland said. “I really think there are some interesting things we can do there, perhaps even complementing the video gateway work we're doing.” BigBand has a portfolio of 70 awarded and pending patents, the companies said. “The patents themselves I view as a larger defensive war chest for ourselves,” McClelland said. The fact that BigBand was an original inventor of much of the technology will help Arris down the road, he said.
As cable operators move toward converged data and video networks, Arris will in a better position to sell its services with BigBand’s products in its portfolio, McClelland said. In 2013, operators should start moving forward with widespread convergence projects, he said. “Today, there are probably a very small number of operators that converge IP and MPEG on a single QAM chassis,” he said. That change will happen over the course of the next few years and won’t be a “flash cut,” he said.
BigBand’s board and its two largest shareholders, who together own about 32 percent of the company, have agreed to the deal, the companies said. A majority of BigBand shareholders must approve the deal before it can close. If the companies fail to complete the deal, BigBand is entitled to a $5.5 million breakup fee, documents filed with the SEC show. Arris has the financial capacity to take on more acquisitions, but will probably focus on completing the BigBand deal and integrating the two companies before setting out on new projects. “We expect it to close quickly and we already have an integration plan in place,” Stanzione said. “We don’t think it’s going to be terribly complicated.”