Europe Approves Cisco’s Tandberg Purchase

Cisco Systems cleared the final major hurdles in its bid to acquire rival Tandberg when regulators both in the United States and Europe approved the deal on 29 March.

The concerns raised by the U.S. Department of Justice and the European Commission—the antitrust arm of the European Union—centered around issues of the impact the $3.4 billion (£2.26bn) deal would have on the competitive landscape and interoperability between Cisco video collaboration products and those of rivals.

Cisco officials expect the deal to close in the next few weeks.

Both Cisco and Tandberg, which has dual headquarters in the United States and Norway, are major players in the immersive video collaboration space known as telepresence. The high-definition video collaboration technology simulates face-to-face meetings, and Cisco officials see it as a major part of their larger collaboration strategy going forward.

DOJ officials said that after analysing the deal, the belief was that anticompetitive concerns around the acquisition on the video collaboration space were lessened because of the evolving nature of the telepresence market and promises around interoperability Cisco officials made to European regulators.

Key among the promises was Cisco’s agreement to divest itself of the TIP (TelePresence Interoperability Protocol) standard the company created to enhance interoperability between Cisco’s TelePresence technology and immersive collaboration products from competitors.

“The remedies package offered by Cisco is suitable to safeguard competition in the market for video communications where the merged entity will have a strong presence,” EC Vice President for Competition Joaquín Almunia said in a statement.

Christine Varney, assistant attorney general in charge of the DOJ’s Antitrust Division, praised the joint efforts of U.S. and European regulators on the investigation.

Marthin De Beer, senior vice president of Cisco’s Emerging Technologies Business Group, said interoperability is the key for growing the telepresence market. “Our commitments will promote multi-vendor interoperability and contribute to the ubiquity of video communications, which will benefit customers, competitors and the industry as a whole,” De Beer said in a statement.

Cisco introduced its TelePresence products five years ago, and that business has grown to include about 600 global customers, and revenue could grow to about $1 billion ($664m) or more once Tandberg is in the fold, Chuck Stucki, vice president and general manager of Cisco’s TelePresence business, said in a recent interview in Cisco’s Boston offices. Stucki said the worldwide market could grow from $3 billion this year to $10 billion over the next five to seven years.

Cisco’s had a strong presence in the enterprise space, and the Tandberg acquisition will give it greater traction among SMBs and expand the reach of TelePresence from the desktop to the largest corporate rooms. It also will give it more ammunition against a growing legion of competitions, including Hewlett-Packard and Logitech, which late last year bought LifeSize Communications.

Cisco already has begun its push for greater interoperability. The company in January announced it was releasing the TIP into the public domain, licensing it to other telepresence and video conferencing vendors, including Tandberg, LifeSize and Radvision. Officials also said they planned to bring the protocol to an industry standards body with hopes of creating an open standard.

However, Polycom officials said they had no intention of signing onto the TIP effort, saying a dominant player in a particular market shouldn’t be the driving force behind an interoperability standard. That job is best left to third-party bodies, they said.

Polycom and HP at the VoiceCon 2010 show on 22 March announced an extended partnership around UC (unified communications). HP will sell Polycom’s portfolio of voice and video conferencing, and that Polycom’s telepresence and video conferencing products will interoperate with HP’s Halo telepresence solution.

The demand for interoperability will grow as more businesses look to video conferencing and telepresence to help save on travel costs. Cisco has used TelePresence, and officials have said they have reduced annual travel costs from $750 million to $350 million.

In addition, Cisco is aggressive expanding the reach of its TelePresence products, including tighter integration with other Cisco collaboration products, such as WebEx.

Cisco’s Stucki also said Cisco is moving the TelePresence business in multiple directions, finding interest in such areas as telecommunications and education, and looking to push it into home offices and living rooms.

The regulatory approvals for the Tandberg deal came the same day Cisco announced its largest TelePresence deal to date. Bank of America will have 200 units installed in various offices around the globe by the end of 2010. The bank currently uses 28 TelePresence systems for meetings and trainings.

The combination of the positive news on the Tandberg front and the Bank of America deal illustrates the strength of video collaboration going forward, according to Brian White, an analyst with Ticonderoga Securities.

“This progress is part of Cisco’s pursuit of the collaboration transition that is estimated by the company at approximately $34 billion,” White wrote in a research note on 29 March. The Bank of America deal “is an impressive win in our view and highlights an inflection point in the video collaboration market as companies are searching for solutions to become more efficient through collaboration and video technology.”