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Heavy Reading Research

Ericsson Snaps Up SDP Firm

Only days after announcing the acquisition of billing company LHS Group , Ericsson AB (Nasdaq: ERIC) has opened its wallet again to acquire service delivery platform (SDP) specialist Drutt Corp. for an undisclosed sum. (See Ericsson Acquires Drutt.)

Ericsson's move is yet another sign that the increasingly important but fragmented SDP market is entering a consolidation phase, as earlier this week two of the sector's other vendors, Aepona Ltd. and Appium AB , announced they are merging. (See Aepona & Appium: SDP Minnows Merge.)

It's also a sign of Ericsson's determination to become a one-stop shop for carriers looking to build next-generation networks and service development/delivery capabilities. The Swedish giant has now announced six acquisitions in six months: Redback, Entrisphere Inc. , Tandberg Television , Mobeon AB , LHS, and now Drutt. (See Ericsson Offers $2.1B for Redback , Ericsson Buys Entrisphere, Ericsson Lands Tandberg TV, and Ericsson Buys Openwave Rival.)

So what does Ericsson get this time? Drutt is an established provider of a complex, pre-integrated SDP called the Mobile Service Delivery Platform (MSDP), designed especially for mobile operators that need to pull in, sell, provision, and bill for applications from third-party partners as well as their own services. (See Drutt Upgrades MSDP.)

Its product has been deployed by 60 mobile operators, including big names such as China Unicom Ltd. (NYSE: CHU), Mobilkom Austria AG & Co. KG , 3 Group , T-Mobile International AG , Telefónica Móviles SA , Telenor Mobil SA , Vodafone Group plc (NYSE: VOD), and one of its investors, Telia Company .

Jan Wareby, senior vice president and head of Ericsson's Multimedia business unit, which will house Drutt once the deal is closed, won't comment on how much it is paying for the vendor, or on the company's finances, other than to say that it's "not a big loss-making company."

According to sources, the company is generating annual revenues of $14 million to $16 million.

While Drutt won't make much of a dent in Ericsson's top or bottom lines, it will have a significant impact on the vendor's SDP strategy, Wareby says. He says that, to date, Ericsson's involvement in the SDP market has been one of systems integrator, pulling together "a portfolio of third party solutions that we integrate into a tailor-made" SDP. Customers include Chunghwa Telecom Co. Ltd. (NYSE: CHT), Vivo Participacoes SA , Telstra Corp. Ltd. (ASX: TLS; NZK: TLS), and Wind Telecomunicazioni SpA . (See Ericsson Wins SDP Contract, Ericsson Lands Telstra Deal, and Carriers Buy Into SDPs.)

With Drutt, though, Ericsson will have its own product to offer mobile operators. Wareby sees that as an important strategic step, as he believes the market is "heading more towards pre-integrated solutions" that don't have to be built from parts sourced from multiple suppliers.

That trend is one also identified by Services Software Insider analyst Caroline Chappell in her recent report, SDP Market Changes: Who Wins & Why. In that report, Chappell says "more operators will opt for a solutions-based approach where the platform underlying the solution can be reused to support further applications and services as needed," instead of an approach that involves "the pure integration of best-of-breed components."

And Ericsson believes it can use Drutt's technology to meet other needs too. Wareby says his team will be able to use the building blocks that make up Drutt's pre-integrated platform to develop other SDP products and "customer unique solutions," including developments for fixed-line service providers, where Ericsson already has some building blocks from its Tandberg TV acquisition. It will also build applications that it can then offer to Drutt's customer base.

In these endeavors, Drutt's staff of about 85 will come in handy. About three quarters of those employees are in R&D and based in Gothenburg, Sweden, which is where Ericsson also has its SDP development team, Wareby notes.

So is this the first of a number of SDP acquisitions by Ericsson? Wareby suggests not. He says Drutt gives Ericsson what it needs in the SDP space, for now at least. "With Drutt and what we have in our internal plans, we have a quite complete portfolio in SDP," he says.

The acquisition also boosts Ericsson's share of the SDP market, which, even without a specific product of its own, the Swedish vendor says it leads with a 12 percent share. That's based on OSS Observer market projections for 2006, which include SDP product sales (applications servers, real-time convergent charging platforms, mobile device management products, and content managers) and revenues from SDP-related integration services.

The OSS Observer team says the total market (products plus integration services) was worth nearly $1.8 billion in 2006. In second place behind Ericsson was Nokia Networks , with an 11 percent share.

And it's a market that's set to grow, too. Ericsson believes the value of the SDP market will more than double between this year and 2011, while OSS Observer predicts that the SDP systems integration services market will leap from $745 million in 2006 to be worth more than $2.3 billion in 2011.

But there's plenty of competition from other major vendors looking to be the main SDP point of contact for carriers. In her report, analyst Chappell identifies a number of competing "SDP framework" vendors challenging Ericsson and Nokia Siemens Networks, including Accenture , HP Inc. (NYSE: HPQ), Huawei Technologies Co. Ltd. , IBM Corp. (NYSE: IBM), Microsoft Corp. (Nasdaq: MSFT), Motorola Inc. (NYSE: MOT), and Sun Microsystems Inc. .

— Ray Le Maistre, International News Editor, Light Reading

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