Ericsson has announced that it’s received final regulatory approval for its acquisition of Vonage, a “communications service provider” that’s long been an OTT play. For many analysts (both telecom and Wall Street) this was a head-scratcher from the first and now it’s happening. Is there any rationality behind it, or is it a knee-jerk reaction to the ongoing problem operators are having in monetizing 5G? I blogged on this acquisition last year, but let’s revisit it now to see if it makes more sense…or less.
From the first, Ericsson has made it clear that what it wants from Vonage isn’t a service platform to compete with its telco customers, but rather a technology platform to allow those customers to compete better with OTTs. The Vonage Communications Platform is a set of APIs and a developer program, and it has been used (and can be further promoted) to develop OTT collaborative services. The idea, says Ericsson, is that it could build service offerings like Teams and Zoom, so operators could avoid the dreaded “disintermediation” they’ve been talking about for almost two decades.
Why now? The answer is 5G. In reality, what 5G has been from the first is an evolutionary step in wireless services. It’s not the Great Transformation, or maybe even the little one. It’s an evolution, but like all network technology evolutions, it requires operator investment. Most 5G users don’t even know when they’re on it, or back on 4G LTE, but operators need to pay nevertheless.
It’s hard to say whether operators promoted the notion that 5G would be a Great Transformation, whether it was vendors (like Ericsson) who wanted the Street to see rosy profit growth, or the media who’s always looking for something to promote. Everyone got into the act, so we got this 5G fantasy story. The question is whether Ericsson believed it, enough to spend a boatload of money buying Vonage to exploit it, for some good reason. If not, this might have been the Great Boondoggle instead of the Great Transformation. In fact, that should probably be the outcome of default, unless Ericsson can make things different.
The biggest barrier to that is the network operators themselves, Ericsson’s customers, the players whose 5G fortunes need a bit of tuning. It’s not that operators oppose the idea of a service platform to build something on top of 5G, or that they object to having something on top of 5G. The problem is that collaborative services have already established themselves, thanks in no small part to COVID, and I mean well established. I’ve talked about the risks Cisco faces by being a “fast follower”. How about the risks of being a slow follower?
Then there’s the problem of Vonage and its customer base. Vonage’s platform developer community has built up services that they, or Vonage, or both, make money on. Vonage, then, is offering collaborative services, which you can see simply by visiting their website: “Power your customer experiences across the journey. Connect employees any time, from anywhere, on any device. Vonage does that.™ Now we’re talking.”
This begs the question of how Ericsson monetizes the acquisition, because it raises the question of how Ericsson’s operator customers exploit the Vonage platform. Do they compete with Vonage (and vice versa), do they encourage developers to build operators’ own custom collaborative services? I said at the outset that Ericsson doesn’t seem to be trying to compete with its operator customers for 5G services, but collaborative services are what Vonage already does. To avoid competition, Ericsson would need a plan to “deconflict”, which we don’t yet have.
Then there’s the “business as usual” question. I would like to see operators make a success of some over-5G service, or any other higher-level service, frankly. They seem to be locked into the notion that connectivity is all they can do, and doesn’t the Vonage website quote say “connect employees any time, from anywhere, on any device”? That sure sounds like connectivity, which means it sounds like it’s playing the same tune as the one operators have failed to dance to for over a decade now. How is this going to help anything, anyone?
It is possible that Ericsson has some vision of the application of Vonage’s platform beyond that which Vonage itself has exercised. After all, Vonage was a VoIP company to start with, a connection player. Possible, but if that’s the case, why not say something about it? You might argue that Ericsson doesn’t want to tip its hand on this point, but one of the things that typically happens with any big M&A attempt is that people in the acquired company who don’t want to be part of the acquiring one will bail out. Usually these are higher-level people who know that their days would be numbered anyway. What are the chances that at least one of those people wouldn’t know what Ericsson and Vonage were discussing, so the secret strategy couldn’t be secret unless Ericsson never checked with Vonage people to validate the possibilities. That doesn’t seem very likely either.
It’s also possible that Ericsson is simply trying to give the customer what they want, even if perhaps the customer is wrong. “The customer is always right” is, after all, a time-honored principle. This would mean that if it is essential for operators to build services on top of 5G, and if operators are predisposed to consider only comfortable connectivity services, then buy up a platform that can provide those services. Then all that remains is to figure out how to work Vonage’s business into the picture.
Perhaps as an out-of-area partner or extension? Who are the prospective customers for the Ericsson-Vonage-technology operator collaborative service? Enterprises, who are very unlikely to have workforces conveniently concentrated in any operator’s 5G footprint. Enterprise-wide collaboration means, effectively, global collaboration. Vonage could offer a way to pull in the workers that aren’t within an Ericsson-partnered operator’s footprint.
The pitfall with this is that if we considered collaborative services to be OTT services, and if we believe that Teams and Zoom are existing examples, then the Internet is enough to extend service to the world, isn’t it? Not if we assume that 5G-specific service features are to be part of the picture. What Ericsson could do with Vonage is provide what’s essentially a 5G-collaborative interexchange carrier capability, one that could be married to local operator 5G features and the 5G features of other operators who also buy into Ericsson’s 5G strategy.
One of the points often overlooked in discussions about advanced 5G applications is the question of how an enterprise service extends beyond a single operator’s footprint. Do operators “federate” (to use a term they often use) things like slices, or something at a higher level? I’d argue that past history suggests that operators are happy to interwork services but much less so to federate lower-level elements, which 5G features like slices would surely be. Vonage could be a means of turning collaborative communications into a federated service.
It could even be more. Might Vonage platform APIs be a means of defining a more general model of service federation? I’ve not been able to review the details of their APIs, but the public information is at least suggestive of support for a broader mission. Operators might see this as a technical benefit, and they might also see it as a way of avoiding a marriage to cloud providers in order to provide wider-geography scope to their services.
And, of course, it could be less than all of this. Vendors in the telecom space have proven they have no better grasp of the evolution of services and the importance of the cloud than their customers. Ericsson may have just spent almost seven billion dollars on something that had potential, but potential they couldn’t realize. We’ll see.