Ambitious French vendor Thomson (NYSE: TMS; Euronext Paris: 18453) is making a major move into the end-to-end IPTV systems market with the proposed €130 million ($155 million) acquisition of Thales Broadcast & Multimedia from its parent, Thales SA (Paris: TCFP.PA). (See Thomson, Thales Hook Up.)

The acquisition is the latest in a rapidly growing market that analysts believe is ripe for consolidation. (See Expect More IPTV M&A).

The deal will give Thomson: IPTV middleware; video-on-demand (VOD) server technology; mobile TV content delivery and management capabilities; video-over-IP test and measurement technology that analyzes and monitors multiple video streams across access networks; and quality of service (QOS) analysis tools for mobile TV.

Thomson is already a seasoned supplier of broadcast systems, including head-end encoders, compression technology, remote management systems, program insertion systems, IP-enabled set-top boxes, and home gateways. (See Thomson Shows Off Gear and Microsoft Soups Up the Set-Top).

IPTV is one of the hottest sectors in the telecom world at present. A recent Light Reading Insider estimated that service providers will spend $21 billion in the 2005 to 2010 timeframe on the technology needed to deliver TV and video services over broadband connections. (See Report: IPTV a Potential Goldmine and IPTV's Economic Realities.)

And given that the market is still in its infancy, Thales Broadcast & Multimedia is already a significant player, having generated revenues of €134.9 million, and an unknown amount of profit, in the 12 months to June 30, 2005. Thomson expects the acquisition to have a neutral impact on earnings in the first year and be accretive after that.

The news pushed Thomson's share price down a fraction, just €0.04, to €18.07 on the Paris stock exchange.

Thales's IPTV middleware, called SmartVision TV, has been deployed by France Telecom SA (NYSE: FTE) for its Maligne TV service, which had more than 140,000 customers at the end of September.

It is also being used by Iceland Telecom (Síminn), a deal won with partner IBM Corp. (NYSE: IBM), and Swiss cable operator Télégenève SA. (See IPTV in Iceland and IBM Scopes Out IPTV Party.)

In its press release, Thomson says the deal is part of its "Two Year Plan, which identifies electronic content distribution and the acceleration of the delivery of IP-based technologies as key growth drivers." A significant previous part of that plan was the acquisition in March 2005 of French softswitch vendor Cirpack. (See Thomson Buys Cirpack.)

With a full suite of IPTV and VOIP capabilities, Thomson is pitching itself against some of the biggest names in the telecom world, including neighbor Alcatel (NYSE: ALA; Paris: CGEP:PA) and Siemens Communications Group. (See Who Makes What: Telco Video.)

Alcatel has an IPTV middleware partnership with Microsoft Corp. (Nasdaq: MSFT), and recently invested in triple-play home gateway vendor 2Wire Inc.. (See Alcatel & Microsoft Going Steady and Alcatel Buys Into 2Wire.)

The French telecom giant is also a shareholder in Thales, owning a 9.5 percent stake. Alcatel and Thales were reportedly in talks about a potential acquisition recently to combine their telecom and defense capabilities, with some media reporting that Alcatel had made an unsuccessful bid to take control of Thales. Alcatel dismissed such suggestions, describing the discussions as ongoing communications between the closely linked companies. Alcatel had no comment on today's news.

Siemens has been building an IPTV story based on its access and customer premises equipment, its acquisition of IPTV middleware player Myrio Corp., and a number of strategic partnerships. (See Siemens Snaps Up Myrio, Siemens Boasts IPTV Success, and Siemens Gears Up for IPTV.)

As part of the acquisition agreement, Thomson and Thales will develop a "partnership relationship specifically in the domain of high-value video content management and distribution solutions for in-flight entertainment, security, and defense applications, leveraging their respective skills and expertise in these domains," the companies announced.

— Ray Le Maistre, International News Editor, Light Reading