Moto Swoops on TTPCom

Motorola Inc. (NYSE: MOT) is set to buy British mobile technology specialist TTP Communications plc for £103 million (US$192 million) in cash, a deal that could give the giant vendor a key position in several growth sectors, including low-cost handsets for emerging markets, in-building mobile coverage, and home gateway technology. (See Moto to Buy TTPCom.)

The news sent TTPCom's share price soaring by an incredible 234 percent to 43.5 pence, 30.5 pence higher than Wednesday's closing price of 13 pence. TTPCom also announced its annual earnings report, which showed a 36 percent slump in revenues to £37.2 million ($69 million) and a loss of £32.3 million ($60 million) compared with a small profit a year earlier. (See TTPCom Reports, Accepts Offer.)

So why would Motorola pay such a premium for a company that has just slumped into the red?

In its statement, Motorola focused on TTPCom's mobile phone technology, which is interesting enough. TTPCom develops applications management software and protocol stacks for mobile handsets that it then licenses to chip vendors such as Intel Corp. (Nasdaq: INTC), Texas Instruments Inc. (NYSE: TXN), and NEC Corp. (Tokyo: 6701), and device manufacturers such as Motorola, BenQ Corp. , LG Telecom , Panasonic Corp. (NYSE: PC), and ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763). (See Kineto, TTPCom Team, TTPCom, NEC Team on Chips, and TTPCom, Intel Develop EDGE.)

On the surface, the reason for the deal looks straightforward. Motorola is one of the world's leading handset firms, and has been working closely with TTPCom on its AJAR applications platform. TTPCom has also been working hard on developing technology blueprints for converged devices that would incorporate GSM, WiFi, Bluetooth, DVB-H for mobile TV, FM radio, and more. In addition, TTPCom has developed a reference design for handsets that would cost less than $20 to make -- an important development for operators such as MTN Group Ltd. , Orascom Telecom , and Vodafone Group plc (NYSE: VOD) that are looking to emerging markets for profitable growth. (See MTN Buy Energizes EMEA M&A, Vodafone Unveils Convergence Plans, Orascom Buys Hutch Stake, and Orascom Reports Q1.)

The emerging market phenomenon was a major talking point at this year's 3GSM in Barcelona, an event run and owned by the GSM Association (GSMA) , a trade body that has endorsed Motorola's low-cost handset strategy. (See GSMA Lowers Handset Price.)

But TTPCom also owns a 47.5 per cent stake in 3G pico base-station vendor ip.access Ltd. that could prove important in the near- and long-term, according to Unstrung Insider chief analyst Gabriel Brown. (See Broadwing Readies 'Unique' Network and ip.access In-Builds BT.)

Pico base stations provide mobile coverage over a very localized area equivalent to a WiFi access point, and are used by carriers to enhance coverage within buildings and in areas of dense usage where regular base stations could become overloaded by high call volume requests.

It's a niche market -- ip.access recorded revenues in the year to March 31 of just £8.4 million ($15.6 million) and had to raise more backing earlier this year -- but one that is set to grow significantly. (See In-Building Shapes Up?, In-Building Set to Boom, and ip.access secures £8.5M.)

Brown says 3G pico base station technology will be used by carriers to help deliver mobile phone and broadband bundles to consumers and small businesses, as service providers need to offer better in-home coverage as they push their emerging home-zone services.

"3G pico cells have long suffered inferior economics to 802.11 wireless LAN, but component providers are narrowing the gap and are talking about bill-of-materials in the range of $150, which could see 3G access embedded in home gateway devices. This will see 3G home zones compete directly with dualmode UMA services, such as the Unik service announced by Orange (NYSE: FTE) yesterday, or BT Group plc (NYSE: BT; London: BTA)’s Fusion service," says Brown. (See FT Turns Orange and BT Goes Blue.)

Brown notes that so-called home zone services, bundled with fixed broadband services, are set to become a major play for carriers, with Vodafone placing a strong emphasis on delivering such services during its strategy makeover presentation this week: "Vodafone says this type of service will be a big part of its new Mobile Plus strategy, which is expected to generate 10 percent of group revenues in three or four years." (See Vodafone Unveils Convergence Plans.)

But the analyst adds that the home-zone technology debate is only beginning. Using 3G pico cells that connect to regular mobile handsets instead of dualmode wireless LAN devices as used in UMA deployments "is a hot debate, with pros and cons on each side." (See In-Building Cellular vs. Wireless LAN.)

It's clear, though, that ip.access is well placed to benefit from growing demand for such technology, but there is significant competition in the pipeline, most notably from Ericsson AB (Nasdaq: ERIC). (See Ericsson Mini-Me.)

"Ip.access could be a great way for Motorola to get some of this business, and would be a good fit with its portfolio. Ericsson is looking to develop 3G pico base stations but hasn’t yet revealed any kind of timeline, though I’ve heard it's looking to have something available by the end of this year," says Brown, who reckons there is at least one major contract up for grabs just now.

"I’ve heard there are some big RFPs out for 3G pico cells at the moment, including one from a major European operator that is said to have requested pricing on volumes of 5 million devices."

And ip.access is excited about the near-term possibilities in the U.K. following the recent award of low-power GSM spectrum licenses that allow service providers to offer localized mobile services. (See Ofcom Names GSM Spectrum Winners and IP.access Applauds Ofcom.) Motorola declined to comment in detail beyond its press release, but a spokesman says it is "interested in all of TTPCom's intellectual capital. It has a robust collection of businesses and talent that we have admired for some time."

TTPCom confirmed that the ip.access stake is part of the proposed acquisition. Ip.access declined to comment on anything.

— Ray Le Maistre, International News Editor, Light Reading. Special to Unstrung

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