Arris Screen Goes Blank - TheStreet

Activity is heating up in the Internet video delivery sector, as Ericsson (ERIC) - Get Report outbids Arris (ARRS) - Get Report for Tandberg TV.

The Swedish wireless giant says it will pay $1.4 billion in cash for Tandberg TV, a Norwegian video technology shop whose shares trade on the Oslo exchange. The proposal is about 10% higher than last month's cash-and-stock offer from cable networking specialist Arris of Suwanee, Ga.

Observers expect Arris to make a counteroffer, possibly all in cash. But some analysts point out that Ericsson has purchased an 11.7% stake in Tandberg, which could be enough to block other offers. Arris said Monday that it is "assessing its options."

Tandberg has had success developing systems that can translate broadcasts into MPEG-2 and MPEG-4 formats for easier video transmission over Internet protocol networks. This expertise is crucial as phone and cable companies seek video infrastructure that can deliver advanced digital services such as high definition images and video-on-demand.

Tandberg has become an even more attractive technology as equipment makers find early efforts with Internet protocol TV extremely challenging and on the verge of collapse. Two leaders who formed a partnership in the IPTV field,

Alcatel-Lucent

(ALU)

and

Microsoft

(MSFT) - Get Report

, have started suing each other over fundamental patent rights in voice, music and video technology.

To industry analysts, this is a sign that the IPTV partnership may have hit the rocks.

Ericsson's entry into Internet video systems pits the company against established heavy-hitters: Scientific-Atlanta, which is

Cisco's

(CSCO) - Get Report

TV gear unit, and

Motorola

( MOT).

Says one industry insider: "Ericsson does not want to be left behind." And that's exactly where investors fear Arris will end up in this race, judging by the steep drop in the stock price.

Ericsson shares rose 18 cents to $36.98 and Arris fell $1.64, or 11%, to 13.65 in midday trading Monday.