Technology

The Great Internet Buildout Is Spurring Mergers


Consumers' soaring use of wireless networks is forcing carriers and equipment makers to improve their products. M&A is a quick way to do that

If you're a BlackBerry (RIM) or iPhone (AAPL) user (see: addict), then you are partly responsible for the great Internet buildout. Those cute apps that look up baseball scores or let you log into Facebook eat up enough bandwidth to put the backend infrastructure of phone companies under pressure, forcing them to upgrade their networks with new and fancy gear. I've described this as the great Internet buildout, and it's one of the main reasons we're seeing a wave of mergers and acquisitions in tech land.

Equinix (EQIX), a data center provider, said on Wednesday it is going to buy competitor Switch & Data for about $689 million in cash and stock. From the release:

"Equinix will integrate Switch & Data's data center business and operations, including the company's 34 data centers in 22 markets in the U.S. and Canada. The acquisition will add more than 1 million gross square feet of data center capacity, bringing Equinix's total global footprint to 79 data centers in 34 markets and more than 6 million square feet across the North American, European, and Asia-Pacific markets."

Spending More Time on the Web

And now Tellabs (TLAB), a Naperville (Ill.)-based maker of telecom equipment, says it's buying WiChorus, a mobile Internet equipment maker based in San Jose, Calif. Tellabs is paying $165 million in cash for the upstart company, whose venture backers include Pinnacle Ventures, Accel Partners, Mayfield, and Redpoint Ventures and which counts Clearwire among those that use its products. WiChorus' SmartCore platform competes with the likes of Starent, which itself is in the process of being acquired by Cisco Systems (CSCO) for $2.9 billion.

What's really going on is pretty simple: Today's consumers are increasingly spending more time on the Web—and they're using the mobile Web almost constantly. From my post The Great Internet Buildout Continues.

"There are 444.3 million broadband subscribers n the world, according to the Broadband Forum, and that number is only going to increase over the next few years as emerging telecom economies such as India, Brazil, and Russia ramp up their Internet efforts. A whopping 250 million people are going to connect to the Internet wirelessly by the end of 2009. Just imagine the bandwidth and computing horsepower needed if all of them started streaming movies from Netflix, listening to music by visiting Spotify, and sharing videos and photos via Facebook."

Pressure on Mobile Networks

A Facebook executive pointed out this week that the company's users spend a collective 8 billion minutes a day on the site. If my math is right, that's roughly 25 minutes per user. (Facebook has 330 million users.) Like me, many are busy uploading their photos to the unstoppable social network.

As higher speeds become available on our mobile handsets, thanks to 4G wireless technologies such as LTE, we will to be spending even more time on these networks. The carriers need to make sure that these networks perform to consumer expectations, otherwise they'll put their fast-growing data revenue stream at risk.

Some say that wireless data is now growing at the rate of 30% to 50% per year. AT&T (T) claims its mobile traffic quadrupled in the past 12 months, with wireless data revenues jumping 33.6% year-over-year in its latest quarter and post-paid average revenue per user rising 3.8%. Given the lack of margins in the cellular voice business, it makes sense that phone companies are doubling down on the wireless business.

Equipment makers see this as an opportunity as well, but they don't have the in-house abilities to cash in on the trend. As I wrote earlier, many of these companies have been stingy in spending on R&D and now are being forced to look outside to fill the holes. Tellabs and Cisco are doing what the market is telling them to do—ride the great Internet buildout wave.

Also from the GigaOM network:

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For AT&T, It's the iPhone to the Rescue...Again

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Use Facebook Friend Groups to Specify Privacy Settings

ReelDirector: Full-Featured Video Editing Comes to the iPhone

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