If you can’t beat them, buy them. Rather than compete with the spry Starent Networks (NASDAQ:STAR) in the mobile packet core space, Cisco Systems (NASDAQ:CSCO) has decided to acquire them, announcing today Starent has accepted a $3 billion offer to purchase its outstanding shares.
With the acquisition, Cisco not only gains one of the hotter companies in the 4G space–Starent was named as a core vendor in VZW’s long-term evolution network–but also a company with significant momentum in 3G. As mobile data usage rises to unprecedented levels and carriers are forced to double, triple and even quadruple their network capacities, Starent is finding increasing demand for its ST40 gateways, which fits neatly into both CDMA and high-speed packet access (HSPA) core networks.
Cisco has been down this road before. When EV-DO and HSPA technologies emerged in the early part of the decade, the wireless network suddenly became much more data focused. That, in turn, presented an entry point for companies like Cisco and Starent in a market dominated by incumbent infrastructure vendors. Cisco developed core gateways for both CDMA and HSPA, all built on Cisco’s industry leading IP routing platform, but hat dominance in the IP network world didn’t translate into dominance in the mobile packet core.
Starent quickly emerged as a key player in CDMA core space, selling its packet data serving node (PDSN) directly to operators or through resale agreements with the major operators. Starent then moved into UMTS–which Cisco also had an eye on–supplying its Gateway GPRS serving nodes (GGSNs) and serving GPRS support nodes (SGSNs) to global carriers like Vodafone (NYSE:VOD), carving away business from the entrenched wireless vendors in the process.
Though Cisco has developed its own gateways for the LTE evolved packet core, it may not be willing to risk a repeat of its failed 3G strategy. Even with Starent in its its ranks, Cisco is still a challenger in a world of incumbent vendors, but it’s entering a 4G market that seems far more welcoming of outsiders–and it’s buying a vendor that managed to execute Cisco’s 3G core strategy much better than Cisco.