What does the Cisco Starent buyout really mean for mobile?

In a $2.9 billion deal today, Cisco has announced its intention to buy multimedia technology company Starent. At that price, Cisco is paying over 20% more per share than Starent was worth at close of business yesterday - and expects the deal to show profit by 2012. But what does the deal actually mean for the players involved, and for the consumer?

The companies - Cisco:

Cisco has been around since the mid-80s, and was originally dedicated to programming and building network routers. Back then, the Internet Protocol had not yet taken over, so routers that could handle multiple protocols were incredibly important. As IP spread, the importance of multi-protocol waned - but this didn’t discourage Cisco. Even back then, it had a habit of spending big in order to bring talent into the company. A history of aggressive acquisitions has seen Cisco bring lots of different companies under the one banner - with the result that Cisco now has 65,000 employees and produces a staggering variety of hardware and software for networking and communications services.

One of the interesting things about this deal is the sheer size of Cisco’s wallet. This isn’t something it has been quiet about either. On the contrary, Cisco has been somewhat boastful of the $36 billion it took in revenue during 2009. The Starent deal is the second multi-billion dollar expenditure we’ve seen from Cisco recently. At the start of October, Cisco agreed to buy Norwegian videoconferencing company Tandberg ASA for $3 billion.

The companies - Starent:

Starent provides the “core” services required by a network operator, like voice and SMS. But Starent is more focused on mobile broadband and next-gen networks. I find what they do extremely interesting: the “network infrastructure” like base stations, cell towers and Radio Access Network equipment eventually feeds back to the core of the operator. And this is where software and hardware from companies like Starent kicks in.

Services and equipment from Starent allow operators to provide their customers with integrated voice, data and multimedia on their devices. The company handles network functions from 2.5G to 4G - the platform pictured above, for example, allows both legacy and next-gen networks to receive the same voice and messaging services.

The deal:

The deal is incredibly straightforward. Cisco is buying Starent out at a price of $35 per share - which is 21% more than those shares were worth on Monday evening. This isn’t actually put to bed yet. There is still a chance Starent could back out of the deal or go with an alternate buyer… but Cisco has put a clause into their deal to “persuade” them not to do that. If Starent does go with someone else, they will have to pay a 3% “breakup fee”! Which comes out at around $90 million.

What we think?

What does this mean? It means business as usual for Cisco, frankly. The company has a history of throwing it’s weight during a recession, and it has been really going for it in 2009. And this is only the beginning - Cisco CEO John Chambers has said that we can expect a lot more aggressive purchasing from the company.

On the consumer end, very little is going to change as a result of this deal. It really does just represent Cisco putting it’s chips where it thinks the money will be. Starent sees the vast majority of its custom from Verizon Wireless - and Verizon has been very active on the data services front recently. Cisco is obviously banking on the idea that pretty soon mobile data services and mobile broadband will be ubiquitous, and the company’s who are in on the ground level will stand to make a hell of a lot more than $3 billion.