Ericsson Entering Competitive, 'Risky' UCaaS Market with Vonage Acquisition

Ericsson‘s $6.2 billion acquisition of Vonage thrusts it into a competitive market it’s not used to operating in, creating potential risk.

That’s according to Jon Arnold, principal of J Arnold & Associates. Ericsson announced its Vonage acquisition early Monday and Vonage‘s board unanimously approved the deal. The transaction builds on Ericsson’s plans to expand globally in wireless enterprise.

Moreover, it builds on the success of Ericsson’s integration of Cradlepoint in September 2020.

Ericsson should complete its acquisition of Vonage in the first half of 2022.

Global 5G Leadership

Ericsson said its global leadership in 5G technology should provide access to the developing space for open network APIs.

The acquisition is getting mixed reactions from the channel. Some say it’s a positive development, while others question the logic.

Mikaela Idermark Stern is Ericsson’s corporate communications manager. She said the acquisition gives Ericsson access to a developer community and a customer base in a growing market. CPaaS is a new market segment for Ericsson.

“The combination of our two companies offers exciting opportunities for customers, partners, developers and team members to capture this next wave,” she said. “Vonage gives us a platform to help our customers monetize the investments in the network, benefitting developers and businesses. The combination of Vonage’s customer base and developer community, and Ericsson’s deep network expertise, 26,000 R&D specialists and global reach create opportunities to accelerate standalone strategies and innovation in the market.”

Vonage said its relationship with its partners will not change. It remains focused on creating the “best experience for our partners as we continue to work together to serve our customers.”

“Together with Ericsson, we can benefit from even greater opportunities to serve our customers and partners, accelerate our mission and create value for our partners,” it said.

A Bold Move that Might Not Work

This acquisition is a good example of a company “making a bold move that might not work,” Arnold said.

“But if it goes to plan, it could be another example of how this industry is being shaken up,” he said. “5G has been a fantasy; it’s been a promise for a very long time. And there are a lot of companies that are heavily invested in this technology, and it’s only going to be successful if they can drive applications and use cases at the other end. You can build the best infrastructure in the world, but it’s not going to be of much interest if no one is going to use the services. And they’re not the only vendor that thinks like that.”

Like Ericsson’s CradlePoint move, this is another piece of a puzzle to create an enterprise services and applications play, Arnold said.

“The downside is if they underestimate the market’s willingness to go with 5G, then they have much bigger problems than Vonage not working out,” he said. “This is not a company they’re looking to just buy and strip the assets, and wind it down or anything. They’re getting a really good team that can drive that innovation. The other downside potentially is this puts them into a competitive market that they’re not used to being in. UCaaS is becoming a very crowded, very commodified space where it’s getting harder to make money. Vonage’s growth trajectory is no guarantee of future success. This is a market that moves fast, has very strong competitors, and it’s a different market than the network infrastructure space. So obviously there’s a risk factor that they’ve had to consider.”

Potential Conflicts with Ericsson-Vonage Combination

There are also potential conflicts with existing vendor or carrier relationships, Arnold said.

“Vonage sells to these carriers, as does Ericsson,” he said. “In addition, there’s always that element of culture. The key there is if
they don’t get too heavy-handed trying to run Vonage because Vonage knows how to be successful in this business, that’s clear. So, otherwise, I suppose there’s potential if the Vonage developer community doesn’t like this move and just goes elsewhere, and Vonage loses some of that ecosystem.”

Scroll through our slideshow above for more reactions to this massive acquisition.

James Anderson and Claudia Adrien contributed to this report.