If Arris succeeds in acquiring Pace, it will control by far the largest share of the traditional pay-TV set-top market. That's a huge advantage in a sector where scale and price are paramount.

However, it would be a mistake to think that the deal, which was announced late yesterday, is only about customer premises equipment (CPE). (See Arris to Acquire Pace for $2.1B.)

Pace plc also brings with it a suite of cloud-based software and services, and the company is a pivotal player in the network infrastructure market thanks to its acquisition of Aurora in 2013.

Bring in the cloud
"We're both kind of typecast as set-top box companies, and that's certainly not all that we do," said Arris Chairman and CEO Bob Stanzione in an interview. "Certainly at Arris we have a large, thriving component which we call Network and Cloud… and Pace has within its portfolio a fairly significant cloud services set of software that we believe is complementary with what we have."

Among Pace's assets are its Titanium content security solution, and its Elements middleware platform. Both technologies have gained traction internationally, and most recently Australian service provider Foxtel installed the Elements platform as part of an integrated deployment with Pace hardware. Two more customers globally are expected to implement the software and hardware combination in 2015.

Arris Group Inc. (Nasdaq: ARRS)' CEO also pointed out that the plan to acquire Pace was announced only a week after his company declared its intent to purchase ActiveVideo in a joint venture with Charter Communications Inc. ActiveVideo Networks, or AVN, focuses specifically on virtualization and cloud-based delivery of set-top functions. (See Arris, Charter Nab ActiveVideo for $135M.)

"When I look at all the pieces that AVN brings with what Arris had before AVN and some of the pieces that Pace has, I think that we can put together a much more significant portfolio of cloud-based products," noted Stanzione.

Want to know more about pay-TV subscriber trends? Check out our dedicated video services content channel here on Light Reading.

Back on the ground
On the infrastructure side of the business, Arris and Pace overlap in some of their optical transport and access network solutions. However, Arris has gained traction in particular with its E6000 Converged Cable Access Platform (CCAP) product, while Pace is perhaps better known for its optical equipment and its approach to distributing certain headend functions deeper into the network. Because service providers have very different views on how their access networks should evolve, that diversity could open the door to new customer opportunities.

"We will, by combining [Arris and Pace]," said Stanzione, "be able to diversify ourselves more than we are now and address some of these new fiber-to-the-home opportunities that I believe are going to be an area of significant investment over the next several years."

Fiber networks will play an increasingly important role not only in delivering residential services, but also in supporting a booming business services market. By purchasing Pace, Arris gains scale to invest further in fiber technologies, and it potentially earns the ability to address new customers in the commercial sector.

Set-top stories
As far as set-tops are concerned, the opportunity for Arris to strengthen its leadership position through a deal with Pace is undeniable. Stanzione has repeatedly emphasized that Pace will give Arris broader entry into the satellite TV world as well as into new international regions. However, the prospect for growth goes even beyond just adding customers. With Pace under its wing, Arris could invest more in hybrid set-tops as well.

"If I'm a satellite TV subscriber, I need to get a two-way high-speed data link also, and so for service providers to be able to combine the two [in a hybrid set-top], it's a very logical and efficient way to move forward," said Stanzione.

The CEO also referenced how the set-top market is changing in other ways.

"We don't just consider set-top boxes, and the set-top box market to be what [it] is traditionally thought of," added Stanzione. "You've seen Apple come in with products, Amazon, Roku and it goes on and on. We just see a virtual onslaught of new ideas and new services, and I think there are great opportunities for integrating these things and being a significant player in the evolution."

Arris may have its work cut out for it in getting the deal with Pace approved. Antitrust concerns around vendor consolidation aside, regulators have their hands full at the moment with other merger reviews. However, Stanzione hopes to get his transaction done before the end of the year, and once that's in place, he's not closing the door on other potential investments.

In particular, Stanzione pointed to WiFi as an area where he believes there is "enormous opportunity." Set-tops are an important piece of the puzzle for Arris, but the company is confidently placing its bets in other areas as well -- from new technologies to new customers, and even to new industries still on the horizon.

— Mari Silbey, special to Light Reading