Home gateway manufacturer 2Wire was tentatively acquired this week by U.K.-based set-top box specialist Pace in a $475 million deal that should close before the end of the year. 2Wire CTO Jaime Fink took time to talk with FierceIPTV about what the deal means to the company in the near- and long-term, and about how changing market conditions and consumer expectations helped bring the two companies together.
FierceIPTV: What does the deal with Pace mean to 2Wire?
Jaime Fink: Certainly a lot of space for us to grow given the kind of company Pace is, so we're pretty excited about it on this side, it's definitely a set of equal partners coming in, in different spaces. It's a pretty exciting opportunity for us.
The businesses have operated very differently to get where we are, but the end game as to how we believe media is going to transform the home is such a common principle between the two of us. The gateway is becoming highly strategic and they understand that. We think that's going to make this a very good partnership in the end.
FierceIPTV: Your business with AT&T obviously is very important, but getting 2Wire, for Pace, is much deeper than that, isn't it.
Fink: No question about it. Obviously we have the relationships, especially in the IPTV environment, that are typically using Microsoft Mediaroom, those are areas that are new for Pace and are stuff that they have not been able to spread their wings on yet, so I think they clearly see this as a way to get pre-plugged in and work with us to really take that experience to the next level.
To a large extent being able to work with middleware providers and the service providers on an end-to-end solution inclusive of the set-top box, that's something that's been harder for 2Wire to do on our own. And that's something service providers have been asking for that's been difficult for them to gain by dealing with each of the individual product vendors separately. Our emphasis will truly be to do what we have done in the past--make the user experience in the home that much easier, plug and play, automated diagnostics, self-help and all those things 2Wire has done in the home network and extent that to the TV experience. That's a huge opportunity.
There's a lot of things that can be done when we merge together home media and the over-the-top opportunities that Pace is definitely starting to capitalize on for the first time.
FierceIPTV: End-to-end is the new buzzword right now, isn't it?
Fink: It sure is, and it's very vague to most people. Where we have focused is more on the experience as it relates to tying the home into the telco's network and being able to make differentiated services become a manageable function, and customer support be an incredibly advanced function because the two are tied together when you hit the home network.
That kind of regulated endpoint is really a vague point now as a result of what happened with the (growth) of the home network, and that's something that we're just absolutely experts on at 2Wire. I believe that Pace is really going to be able to take advantage of that, not just in the telco space, but there's a lot of talk going on these days about how the cable world looks at the digital home and is really rethinking the way that things like management technologies extending into the home will happen
There are a lot of inquiries about things like broadband forum TR-69 technology extending into the cable and the satellite world, so, again, I think its an area where we can bring really good pieces of development and very mature technology into product spaces that, because there wasn't overlap between vendors in each space before, there wasn't a lot of push for companies like us to go into those spaces.
Now we have not only the momentum of a company behind that, but the tools ready to go do so.
FierceIPTV: Is IPTV going to accelerate in the U.S.? Are smaller telcos going to get into IPTV?
Fink: There's no question that there's a lot more investment going on in the space now, the challenge has been that smaller telcos are dealing with long loops, and they're not predisposed to putting fiber out to the home. Getting an economics model that really extends loop lengths at a lower cost is important. What I think that you're going to see is that the overall capex model--that they have to spend to get network out there--has been pretty biased against them.
If you look at a lot of the technologies that we've been working on with some of the products announced recently at AT&T, like DSL bonding, which has been extremely successful in the field, most people don't really understand how much influence that really could have in the small markets where they can now double loop length without putting out the cost into fiber in the ground.
If we can help in that area, that'll be a big, big push.
With Microsoft and others dealing with these virtualized server architectures that have been announced recently, with their excitement, certainly the set top box folks are excited, too. It's something that we are showing for the first time with AT&T in the field, and usually we see about a six- to 12-month lag between other customers recognizing that and wanting to take advantage of AT&T's technology and the scale that they bring to the table.
We are getting pretty aggressive about taking that technology to other customers, so we think it's a big opportunity. We don't know yet exactly how big of one it is, and actually can't comment on that at this point, but we're very bullish about what the opportunity is in those areas. And, frankly, Pace is extremely good at being able to leverage many more customers than 2Wire has been able to scale up to because we've been so focused on AT&T.
We're really looking forward to gaining a lot of that operational experience and the ability to jump out and do a lot more accounts.
FierceIPTV: Would you expect to have a greater exposure in Europe now as well, because of Pace's presence, and the state of IPTV, on the Continent?
Fink: Definitely. And there's a fair amount of cable and satellite there where Pace is pretty good. We have definitely tried to find our feet in places in Europe and have a couple of good experiences with both BT and with Portugal Telecom we have some good IPTV experience, and we expect to continue those experiences. But there's no question Pace brings a completely different front for us in Europe in the long run.
There also is a big evolution happening right now around media in the home with European customers; they are pushing the vision of a hybrid gateway television experience. I'm probably the lead person going out into those markets and talking to the customers and dealing with the vision side of things. There is no question our roadmap aligns with their desire to both operationalize IPTV to be a lower-cost approach by centralizing TV functions in things like a gateway, and using standard equipment to interoperate with. These are things I think we all share from a vision perspective. And that will align very well with European customers for us.
But I think we'll start by really bringing what we have to the table so that we can get real operational efficiency and scale with some of those customers. And, Pace will help us represent that very well.
In the long term, obviously, it represents the right vision approach about integrating home technologies in the home network, because that's really where most of these guys are talking. We know that's typically a two- to three-year process to really change the way that technology works inside of the home. For now, we think we have the right portfolios together to move forward and definitely the right vision based on what we're hearing in the field.
FierceIPTV: Six months ago, over-the-top delivery was seen as a threat to operators, that's changed dramatically.
Fink: No question about that. I don't think for a second that we really ever believed that over-the-top would be able to be successful by itself. I think you can point to a large number of boxes in the market that have never made it, and that includes Apple TV, that includes the Boxee experiences and things like that.
Consumers just have no interest in adding another device to connect to their television, especially where they've got Xboxes and PlayStation 3s and things like that.
The broadcast experience for television is going to be around for a while. It's a much better lead place to bring in over-the-top, in addition to integration into the gaming platforms and things like that, versus going in with a completely stand-alone over-the-top solution.
When you bring together the abilities to merge content from a lot of places, from an electronic programming guide perspective, and having both the broadcast link and over-the-top Internet link, and you can bend that experience well, this is an area where we saw AT&T work with us years ago.
We have a lot of experience in that field, Pace has a lot of experience in that field. It doesn't necessarily overlap, but there are a lot of joint approaches that we think we can bring to the table to make the best hybrid experience in the market.
FierceIPTV: Is there any significance to the timing of this deal, or was it just the right time to happen?
Fink: There was no specific driver. Looking at the 2Wire scale right now we know that--while AT&T has been an amazing customer--obviously it has been extraordinarily difficult for us to deconcentrate those percentages of revenue because AT&T just keeps growing so fast and they push the envelope technically so strongly that it really took a lot of our focus. We believe that the ability to scale into other customers is something that Pace has, and something that we will be able to really gain over time. Being able to replicate the AT&T technology in more markets is something that we both have as a huge goal. And, that's not just limited to telcos. As a company, we limited ourselves to telcos, for a number of reasons over time, but we're really able to break free of those boundaries now, which I think is where Pace has it biggest complementary strengths with us.
Financially we've always been in great health, and we expect to add to the bottom line very well for Pace over the first year. It was also definitely AT&T wanting to see 2Wire as a growing and stronger company and it seemed like the right timing for that, and for Alcatel-Lucent, this was a company that obviously could work well with them.
FierceIPTV: How intact will 2Wire be after the purchase.
Fink: Pace is very structured regionally and divisionally from a product perspective. So, as of now, we expect to be extraordinarily intact and expect no changes. In the near term for sure, in the long term, you never know about these things. I do believe we will take a fair amount of time to align our longer-term vision technology and make sure that we're building toward a much more common global platform. And that's something we all are going to learn about over the next years. As of now, we obviously must maintain 2Wire as an entity to be able to support AT&T and that was one of the primary drivers of this particular relationship, the intent to maintain 2Wire as it is.
FierceIPTV: It sounds like a great tie up for 2Wire...
Fink: I really think so, and it's an exciting time for us.