Consolidation Reshapes Enterprise Networking Market

The acquisition of Covergence Inc. last week by session border controller provider Acme Packet (APKT) solidifies Acme’s leading position in the SBC market. It also brings into focus the rapidly changing market for enterprise IP networking, which has been marked by rapid consolidation, as well as highlighting an interesting set of challenges for Cisco Systems Inc. (CSCO), which has long dominated sales of networking gear to businesses.

The Covergence purchase marks the latest in a series of acquisitions and other developments that have sharply reduced the number of independent SBC vendors in the marketplace. NextPoint, which was the No. 2 vendor behind Acme, was acquired last year by GENBAND. Newport Networks effectively was shuttered when it was delisted from the AIM stock exchange earlier this year. Several other suppliers have been bought or shut down.

“You could count 20 different vendors in this space at one point,” commented Seamus Hourihan, vice president of marketing and product management for Acme Packet. Now there are perhaps a dozen in all, but the SBC market is dominated by Acme, with about 48 percent market share according to Infonetics Research. Huawei and GENBAND each control around 15 percent, while AudioCodes Ltd. (AUDC) and Mera have under 10 percent between them.

What’s happening is that the SBC function is being subsumed into larger networking platforms – a development advanced and welcomed by Cisco, which still has something like 65 percent market share for enterprise networking gear overall. While Cisco traditionally has been strong in the business-user market, Acme Packet makes close to 90 percent of its sales to service providers. Both companies are trying to encroach on the other’s turf, as Cisco moves into the carrier market while Acme strengthens itself on the enterprise side, particularly with large enterprises that have multiple remote sites and branch offices that now require SIP trunking and border control functions of their own.

The parallel technological trend is that SBCs are becoming important not just for bridging legacy, TDM networks and advanced IP systems, but becoming gateways between dissimilar IP networks. Carriers still require some point of demarcation between their networks and the enterprise LAN; but the distinction between SBCs and other types of gateways will fade over time.

Thus Acme is broadening its product set, through the Covergence deal, to include software-based systems for small sites connecting to larger enterprise networks. The company also said earlier this year that it is adding new interworking functions into its Net-Net OS SBC line to bridge the gaps between incompatible SIP-based networks.