Ericsson’s Telco TV Play

Updated: Ever since they got out of the mobile handset game, Ericsson has become a whole different company: smart, strategic and opportunistic. Sensing that Alcatel will be mired in the quagmire called Lucent for a while, the company is making a play for the telcos’ television expansion plans.

The Alcatel-Microsoft IPTV alliance might be on a slippery slope, and Ericsson could do well to become a viable option. Ericsson has be buying-and-bulking up, feeling confident enough to challenge the other traditionals in the networking gear business.

Here is a quick rundown of what Ericsson has bought over past 24 months: It bought Marconi (optical). Then Netvise (VoIP). Next on the menu was Redback Networks (for multi service edge routing), and more recently, it snapped up Enterisphere (next generation access.) And this morning the Swedish company announced a $1.4 billion bid for Tandberg Television, hoping that it can snatch the video encoding equipment maker away from Arris.

Ericsson says it already owns about 11.7% of Tandberg. The company claims it also has the backing of shareholders who own another 13% of Tandberg. The all-cash offer is unsolicited, and it could elicit counter bids from the likes of Motorola and Arris.

Jeff Heynen, analyst with Infonetics Research has some thoughts about this deal:

Ericsson’s offer for Tandberg TV is an aggressive play that would nicely bookend their acquisitions of Marconi, Redback and Entrisphere, allowing them to go after the massive service provider spend on DSL, edge routing, fiber to the home, and headend infrastructure to support IPTV services. If the deal goes through, it would certainly help Ericsson transform itself into a major end-to-end wireline and wireless video network infrastructure player.

At the same time, the deal really throws a monkey wrench into Arris’ plans to become a player in the telco IPTV market and the overall digital video headend market. Now, Arris once again finds itself looking for a way to get into the video headend business to keep pace with rivals Cisco and Motorola.

RBC analyst Mark Sue thinks Ericsson’s bid is more attractive than Arris’ for a number of reasons, including the cash vs. stock appeal plus a better geographical fit:

Ericsson’s foray into video will start with a foothold in the European markets and the company may be able to better integrate Tandberg, based in Norway, more readily than Arris, which is based in Georgia.

Carl-Henric Svanberg, CEO of Ericsson at a press conference focused on how Tandberg could get them into the lucrative cable market, where it can sell some of its routing/optical/mobile infrastructure. That is all good, but the bigger opportunity: telco TV.

“IPTV for cable and telecom operators is the biggest networked multimedia opportunity going forward. Ericsson and Tandberg Television is a strong combination with a unique ability to offer complete IPTV solutions,” he said in a press statement.

The question is what with the Swedes buy next? Any suggestions?