NexTone-Reef Point Merger (Still) Coming
Light Reading reported on Monday that NexTone Communications Inc. and Reef Point Systems Inc. were likely to merge this week, but -- trick or treat! -- the companies entered a joint product partnership instead. (See NexTone, Reef Point Intro Gateway.)
Were we wrong? Not really.
The joint product hoo-ha is just the first step before a full-blown hook-up, our sources say.
The new product, which the companies call the NextPoint Integrated Border Gateway (IBG), combines the capabilities of NexTone's session border controller (SBC) and Reef Point's security gateway platform.
The result is a device that the companies say will allow service providers to consolidate network elements to support security and session management over wireline and wireless networks.
By combining SBC and security gateway functionality, NexTone and Reef Point say they can add enhanced security and scale to next-generation networks, while reducing carrier opex through the consolidation of multiple functions onto a single device.
Joe McGarvey, senior analyst at Heavy Reading, says there are definite benefits associated with pulling these two pieces of networking equipment together.
"It seems to be a natural fit, especially as wireline and wireless service providers converge their infrastructure," says McGarvey. "It makes sense to centralize this functionality in one place."
But the combined product is entering the market in an odd way. It's being sold by Reef Point, which works primarily through channel partners like Alcatel-Lucent (NYSE: ALU) and Samsung Corp. , and NexTone, which sells directly to its customers.
NexTone executive chairman David Walsh says, "It will take some time to figure out the best way to go to market."
How the companies plan to book revenues for the IBG is also an issue. Reef Point uses a license-based subscriber model for its sales, while NexTone is on a port-based model, says Reef Point CEO Woody Ritchey.
"Depending on how it breaks out, that's how the distribution would work," Ritchey says, adding that such a revenue distribution would not be 50-50, because the number of licenses and ports would vary by deployment.
Also, though the combo product makes sense on paper, it's worth noting that the NextPoint IBG is attempting to plow some new ground.
"It's a product category that doesn’t have a market right now," Heavy Reading's McGarvey says. "Exactly how demand for this is going to develop is still up in the air right now."
John Longo, VP of marketing for NexTone, admits that this is a market in its infancy. "We're in the very early stages of a very fast-growing market," he says.
The companies say that the NextPoint IBG is in early stages of development, with lab trial equipment available this quarter and beta equipment not expected in customer networks until the second quarter of 2008. That means the product might not be commercially available until the third or fourth quarter of next year. [Ed. note: You know, after the merger.]
Walsh says, "We wanted to get out ahead of the market. I would call this a jump off the line, and sometimes that's all you really need to win the race."
The merger: wait for it
The NextPoint IBG announcement came on the heels of our report that NexTone and Reef Point could announce a merger as early as this week. (See NexTone-Reef Point Merger in Works.)
Our timing may be off, but one source says there is more to the partnership than was publicly announced. Another source, who is well connected within the VOIP industry, tells Light Reading that a merger is on -- and that it's worth noting that the companies share common backers in JP.MorganChase 's private-equity arm, One Equity Partners .
Earlier this year, One Equity Partners was part of a $25 million financing round in Reef Point. Walsh is a general partner at One Equity, and he says the decision to invest in Reef Point was inspired at least in part by the possibility that the company could work with NexTone, which One Equity had previously invested in. (See ReefPoint Secures $25M.)
"We made the investment thinking this was a potential possibility, not a requirement. We didn't say we weren't going to make this investment unless these companies work together, but I think we were more interested in the investment because of the potential of them working together," Walsh says.
Company officials on both sides say no merger is imminent, but they didn't rule out the possibility.
Walsh, who was named executive chairman of NexTone in June, said he couldn't comment on rumors that the two companies would combine. "The thing about partnerships in general is that most happen when companies see the benefit in working together. The greater the synergy they see, the more likely they are to become mergers."
— Ryan Lawler, Reporter, Light Reading