DRIVING DEALS

Tekelec's move to acquire VocalData comes at a time when many IP technology vendors appear to be trying to strengthen through consolidation along the lines of softswitch, media gateway and application server solutions.

Historically, a lot of vendor community mergers and acquisition activity has been driven by interest among vendors in providing end-to-end solutions. There have been several such consolidation cycles during the last 10 years, and each one has been initiated on the presumption that public network operators were demanding those end-to-end approaches to perform comprehensive network upgrades to satisfy radically changing market conditions.

Sometimes these presumptions are correct, and sometimes they aren't. This time around, the radically changing market conditions are pretty obvious. Voice over IP is fast becoming a mainstream service.

When you think about it, this is the “Big One,” as Fred Sanford might put it. The traditional telecom industry hoped it would never come — its plain old telephone service being supplanted by voice over IP. Now, combined with the nascent trend of wireless replacement of wireline in the residential market, the old fortresses of traditional telecom players are under siege.

However, another driver of this vendor consolidation — the belief that these market factors are pushing carriers to pursue wholesale upgrades — is not so apparent across the industry.

It has become obvious recently that AT&T is accelerating its IP migration, and Dittberner Associates recently reported that shipments of IP softswitches were up worldwide during the second quarter. However, Dittberner also noted that the market hasn't shown sustained improvement and that carrier capex budgets, for the most part, haven't loosened up too much. Vendors are taking the changing market conditions as an indication that carriers will be coaxed into spending more money soon on end-to-end IP solutions whether they are ready to do so or not.

However, it seems unlikely that even carriers that are being pressed on all sides by new, threatening market conditions will want to initiate very large spending programs for massive network upgrades. Weren't they supposed to have learned during the industry's economic decline how to avoid spending too much, too aggressively?

As much as we like to believe that competition always drives increased investment, the opposite can sometimes be true. You have to wonder if the recent decline engendered in these carriers a new appreciation for piecemeal, best-of-breed equipment purchases. It's not yet clear that this has happened, but it's not yet clear that it hasn't, either.