Cisco's $3 billion deal underlines importance of Internet video

(NECN: Peter Howe, Boxborough/Tewksbury, Mass.) – Internet giant Cisco Systems Inc.’s $2.9 billion purchase of nine-year-old Starent Networks underlines the world’s most important Internet company’s conviction that video is the next huge Net wave — both landline and wireless. As head executive in charge of Cisco’s New England operations, Paul Bosco sees all the hot technologies. And what he thinks is one of the very hottest is the kind of video he’s seeing on devices like the iPhone, Blackberry, Palm Pre, and numerous other “smartphones” and handheld devices. “If the audio quality is great, you have a market that’s opening for video consumption of this size,” Bosco said in an interview at Cisco’s Boxborough office campus. “I am surprised at how quickly the technologies are moving on small-scale video and audio in particular.” One of the little-known but key companies making video happen on wireless — including on giant networks like Verizon Wireless and Sprint — is Starent Networks of Tewksbury. Starent is just nine years old, but already so important in the field Cisco said Tuesday it’s agreeing to buy Starent for $2.9 billion — $35 a share, a 21 percent premium from Starent’s Monday closing price. Since its inception, Starent has focused on the challenges around delivering Internet content to cellphones and handheld devices. While even landline carriers struggle sometimes to deliver smooth video to computers through phone or cable connections, Starent has developed systems that handle and master the even more complex task of delivering smooth video to cellphones through wireless connections. As the leading builder of the machines that run the Internet, Cisco thinks video is the next huge thing for the Net, on both computers and handhelds and cellphones. “We want to make sure that experience that you have on a handheld device, the video applications you’re using, is significantly better than where we are today,” Bosco said. With help from Starent’s equipment, software, and engineering talent, Bosco said, “We think we can take it to the next level.” Among other things, Cisco is eyeing a day when wireless networks will be robust enough to offer phone-to-phone videoconferencing. Already Starent sells network equipment to over 100 wireless phone and data companies in 45 countries. Asked some of the keys to going from startup to $3 billion company in just nine years, Starent founder and CEO Ash Dahod credited a close focus on hiring and nurturing good workers and also “a very intense customer focus, listening to customers, what challenges they face today.” What he’s heard from his network carrier customers is not only that their subscribers are hungrier and hungrier for video content, but parent-age customers don’t want their kids getting necessarily all that the Web can offer on their phones. “If you don’t want your minors having access to certain content, our technology allows you to do that” kind of content-blocking many parents clamor for, Dahod said. In the year ended December 31, 2008, Starent posted revenues of $254.1 million, up 74 percent from a year earlier. As part of the deal, Dahod is leading a new Bay-State-based Cisco Mobile Internet Technology Group. Starent’s 1,000 employees — 250 of them in Massachusetts, the rest in other states and countries — will be offered Cisco jobs, recognized as important talent for Cisco as it evolves the Internet for the iPhone/BlackBerry era. Over its history, Cisco has purchased more than 130 start-up- and larger-sized companies to grow as a technology giant, including 15 in New England before Starent. Typically Cisco has worked aggressively and offered substantial financial incentives to retain talent from acquired companies after they’ve been incorporated into Cisco.