It might be considered the Revenge of Analog. The world of packets changed the communication networks at their core with companies like Sonus delivering a tandem interconnection softswitch that was better for interfacing to the fiber networks that started traversing the world at the turn of this century. It was like a gold rush land grab and Sonus, lead at the beginning by Rubin Gruber and Mike Hluchyj. Likewise, GENBAND got its start as General Bandwidth in the early 2000’s having invented a very popular soft switch, converting voice calls from Time Division Multiplex (TDM) networks onto Internet Protocol (IP) networks,
By merging two of the world’s most “embedded” IP session management technology companies are now focused on the next gold rush in IoT.
GENBAND brings with them IoT offerings based on their most recent invention, the Kandy Cloud Communications Platform as a Service, while Sonus has strong diameter interfaces that can be instrumental in developing configuration and management tools needed to manage the rapid grow of devices on the network.
Managing the full stack of IoT requires a vision at the application with the stamina to support operations scaling requirements. Sonus CEO Raymond Dolan will lead the new group, while GENBAND’s CEO David Walsh will oversee the Kandy business (cloud communications platform as a service) and assist with the integration of the businesses. Sonus’ CFO resigned earlier this year, and GENBAND’s CFO Daryl Raiford will continue in the same role at the new company. Sonus chairman and former Verizon CTO Richard Lynch will continue as chairman.
The vision of of “full stack communications” from infrastructure to Infrastructure as a Service (IaaS), from network to Network as a Service (NaaS), and to applications and everything else as a service (XaaS) which GENBAND’s CEO David Walsh wrote about last year as “The Exchange of Everything.”
At Mobile World Congress GENBAND demonstrated with AT&T a handful of applications powered by AT&T’s IoT Starter kit, applications spun up on the Kandy platform, “enhanced to deliver the ‘human element’ to IoT connectivity via contextual Real Time Communications solutions” and enabling “things” and “people” to actively message each other to get work done.
Previously in 2015 GENBAND’s Kandy platform demonstrated an IBM Watson healthcare IoT solution integrating real time voice and video conversations into a third-party app with a complete stream that starts in the Emergency Room and ends up routing a patients’ vital signs directly to their cardiologist for an immediate consult based on IBM’s analysis. This happens in minutes, and according to the developers of the demo, was built in a matter of weeks using the Kandy platform.
Securing the Perimeter, the Diameter and the Data in Motion
Where might Sonus’ capabilities fit in when it comes to connecting people and things in the brave new world? You may think of their capabilities in solving scale as an opportunity to compete with Cisco’s Jasper acquisition.
While the company has been quiet about IoT, they are innovating on the edge of the network, particularly on the edge of mobile networks, where mobile broadband is being consumed more and more by IoT deployments. While many IoT and especially IIoT implementations are “fixed,” just as in the “human” world, more and more mobile applications supporting IoT “anywhere” are exploding. From fitness monitors to smart cars, “data in motion” needs to be protected once “things” are registered to the network, and those things need to be registered efficiently and securely.
This is where Sonus’ diameter signaling software comes into play.
Buried in the company’s website there is this explanation:
“The demand on mobile networks is expected to grow exponentially with the exploitation of mobile broadband and increasing consumption of Internet of Things (IOT) services from a vast array of devices. Diameter signaling messages in mobile networks is expected to grow correspondingly. Smartphones alone generate several Diameter signaling messages each time they access an application, download data, roam on a different network, and even when they’re simply turned on and off. The Sonus family of DSCs is designed to address the performance, capacity, scalability and roaming needs of the mobile networks for this rapidly expanding market.”
Sonus may be further along in the 4G/LTE networking world than GENBAND, able to secure network borders through IPsec encryption, DoS protection, and network topology hiding. Sonus states their diameter signaling “prevents network element overload and service interruptions through load balancing” and helps CSPs “overcome Diameter protocol and node interoperability issues” while also interworking with MAP protocols between LTE and 2G/3G networks, with strong SS7 signaling transfer points.
Core – Edge – Interconnect
Without getting too technical, the combination of technologies (and between Sonus and GENBAND there are well over 200 patents in the IP networking, internetworking, and interworking categories), they have centralized core and edge routing capabilities CSPs need in order to fully modernize their networks, and go after the IoT growth market.
The companies license increasingly virtualized software for secure and performance networking including a 3GPP specified Diameter Routing Agent, a GSMA specified Diameter Edge Agent, subscription location functions, interworking functions, SS7 signaling transfer points, centralized management through element management systems, and a lot of other necessary functions we don’t have to think about when we humans place a call – or our heart monitors do.
The Value Proposition for Share Holders
The most compelling arguments for bringing the two companies together at this moment in time, as margins for software businesses are two or three times higher than margins for their old-world businesses (boxes, software, maintenance). It’s in the clouds, and connecting the clouds, to connect people and things, that may end up driving more value for the companies’ shareholders than they could have imagined when the businesses were established in the now relatively early days of IP and mobile broadband networking.
While the complete rationale for the transaction is likely extremely detailed, with a complex model, or models, particularly in the context of the disruptive technology and economic models uprooting the real time communications industry, the investor presentation and SEC filings provide ample insight into the “combination of strengths” strategy.
The combined 2016 revenue and EBITDA for GENBAND and Sonus would have been approximately USD 680 million and USD 50 million. They anticipate annual cost synergies of USD 40-50 million by the end of 2018 and positive operating cash flow in the first year after closing. After the expected synergies, the combined company is expected to generate at least USD 100 million in annual EBITDA and target EBITDA of USD 140 million by 2020.
Under the terms of the agreement, the two companies will combine under a newly formed holding company, with each Sonus shareholder receiving one share of common stock in the combined company for each existing share owned. The combined company will issue 50 million shares of common stock to GENBAND’s equity owners as well as USD 22.5 million in an unsecured note. Upon closing of the transaction, while the ownership will be 50/50, GENBAND will have one more board seat than Sonus.
The new group should have a net cash position of USD 40-45 million when the merger closes in the second half of 2017 (the deal remains subject to shareholder and regulatory approval) – and large CSPs and enterprises like solid balance sheets like this.
The companies established www.rtcleaders.com to share information common to the two companies, and in a letter posted as part of the SEC filings, the companies shared a letter from Ray Dolan to Sonus’s customers:
There are a lot of reasons why combining with GENBAND will accelerate our strategic plans, now that we’ve successfully transformed to a software-based company and are continuing our investment in new cloud architecture. The bottom line is that bringing our two companies together will create greater growth opportunities for both Sonus and GENBAND, and we’ll be even better positioned for success as a combined organization.
Strategic plans in IoT? We can’t imagine the companies not doubling down on going after the IoT growth world, working with their existing CSPs customers and technology ecosystem partners, including many in the NFV world (Dell, HP, Wind River, and many more).
Virtualized in the core and at the edge, the value for IoT developers, while yet to be fully revealed, could prove to be substantial, particularly given the development already underway with companies like AT&T.