Oracle Not Done with Its Telecom Foray

NEW YORK ( TheStreet) -- After the Acme Packet acquisition, many industry pundits felt that Broadsoft ( BSFT) would be the next target for Oracle ( ORCL) in the quest to bolster its communications portfolio. The two key arguments for this thesis were the fact that Acme and Broadsoft had been working very closely together since around 2000, and that Broadsoft has an attractive current price after reporting soft results in the last quarter of 2012 (BSFT had lost about 50% of its valuation since its Q4'12 results and weak 2013 guide before bouncing back up with a good Q1'13).

The close relationship between Acme Packet and Broadsoft developed quickly, since both were startups in the VoIP space and there were synergies due to the complementary nature of their products. Acme's strength was in the Session Border Controller (SBC) arena, where it has a leading product that sets up, manages and terminates sessions between a user and his target destination (be it a private IP address, a SIP trunk operator or the public Internet), delivering the necessary data (voice, video, data) and performing functions along the way (coding/decoding, security, etc.).

On the other hand, Broadsoft makes a leading VoIP SIP application server offering a plethora of services. These include call handling (for example, call forwarding and music on hold), voice/video conferencing and unified communications (integrated voicemail, email, text, faxes). The two products go hand-in-hand: an enterprise deploying a VoIP app server would typically need an SBC at the edge of its corporate network. Therefore, the two companies share a pretty similar customer base constituted by large enterprises and carriers reselling VoIP services to smaller enterprise customers.

However, much to these experts' surprise, the next M&A move Oracle made in March was Tekelec. No financial terms were disclosed, but Tekelec had been taken private in January 2012 by a consortium led by Siris Capital for $780 million. Oracle made this acquisition realizing that it needs to make a bold move into the carrier space, not only to get more diversification away from enterprise/SaaS, but also to be able to maintain its highly skilled and remunerated sales force. This objective is harder to achieve in the enterprise software space, where deals are getting smaller and margin squeeze is becoming more prevalent. By selling carrier solutions that are highly customized, involving not just software but also hardware appliances, Oracle will be able to maintain its current sales modus operandi.

Tekelec gives Oracle second-to-none expertise in signaling, where it is the leader not only in the Signaling System 7 (SS7) protocol, with more than 300 carrier customers, but also in the emerging Diameter market. Tekelec also has a dominant market share in the DSC (Diameter Signaling Controller) segment, with over 30 LTE DSC operators. Additionally, Tekelec has grown its policy control (roughly 60 customers) and SDM (Subscriber Data Management) product lines (over 35 carriers) via the acquisitions of Camiant and Blueslice Networks. With a repository of policies and subscriber data, Oracle will create stickiness with its customer base and further expand its footprint into the telco space, where it already had a leading position in database infrastructure.

Oracle's Next Move?

After acquiring two companies in the telecom space, Oracle management hinted at financial services and retail as other verticals the company would delve deeper into via innovation or acquisition. However, I believe that the company will further bolster its telecom stack. Here are a few possibilities:

DPI (Deep Packet Inspection) - this is an important capability that can enhance the Oracle charging solution set. Players such as Allot Communications ( ALLT) (which maintained a relationship with Tekelec to enhance the latter's PCRF product in accounts such as Orange, Verizon ( VZ) and Vodafone ( VOD )) and Procera Networks ( PKT) (which partnered with Tekelec in some accounts such as Comcast) can be distinct possibilities.

Video optimization - these systems can further augment the utility of policy control systems. As per Cisco's ( CSCO) VNI (Visual Networking Index) forecasts, video is going to be the key component in mobile traffic growth, so this will be a hot area, as attested by last year's acquisitions of Bytemobile (by Citrix ( CTXS)) and Ortiva (by Allot). Other current standalone vendors include Flash Networks and Vantrix.

SDN (Software Defined Networking) vendor - as part of the future "Thinking Networks" vision outlined by Tekelec, there is a "policy-directed SDN controller" element that leverages SDN technologies such as OpenFlow to dynamically control traffic entering or leaving a cloud-based DSC. The acquisition of an SDN startup can accelerate the time-to-market of this component. The field is wide open here, with over 200 companies competing in the nascent SDN arena.

Oracle might still opt to delve into the applications arena via Broadsoft or some other smaller incremental purchase in the UC/RCS (Rich Communication Suite) arena such as Mavenir (VoLTE/RCS) or app enablement (via APIs) such as Solaiemes or other vendors that are enabling carriers to formulate a response to the ongoing OTT (over-the-top) threat of new players such as WhatsApp. Post Acme Packet and Tekelec, Oracle now has a full arsenal of control/application plane functions at its disposal.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.
Ronald Gruia is a Director at Frost & Sullivan covering emerging telecoms. He has spoken at conferences including Supercomm, CTIA, Intel Communications Summit and VON Canada.