Acme Packet, the iPhone 5, and the End of Telecom

How much is the iPhone 5 affecting tech infrastructure businesses? Quite a bit, as it turns out. To see what the global impact of millions of new devices coming onto 4G LTE networks is, it’s useful to take a look at a company like Acme Packet. You know, just another Boston-area tech firm with a billion-dollar market cap (and pushing 900 employees).

Acme Packet (NASDAQ: APKT), the Bedford, MA-based Internet Protocol networking company, has been on a rollercoaster ride over its 12 years. Founded in 2000 by Andy Ory and Patrick MeLampy, the firm survived the tech bubble and went public in 2006, before its stock price fell to earth during the financial crisis of late 2008-09. From a low of around $4 a share, its stock then climbed to over $70 in the spring of 2011. Since then, however, the price has fallen steadily again, to less than $20 since this summer.

The company’s future rests on delivering networking technology that helps mobile operators, Internet service providers, and enterprises handle communications in the cloud—voice and video over IP, as well as other services—more securely and efficiently. And that’s where the iPhone 5, and other devices like it, come into play.

I recently sat down with Ory and MeLampy (pictured at left) at company headquarters in Bedford, MA. They updated me on Acme Packet’s strategy in the mobile and enterprise sectors. But the discussion also led us to some much bigger issues—things like the decline of Europe and rise of Asia in telecom manufacturing, the shifting role of wireless carriers in the tech ecosystem, and the very future of Internet communications and telecom.

That’s pretty heavy stuff, but Ory, Acme Packet’s CEO, starts off with a simple statement: “The two biggest things that have happened in our lives, from any type of communications perspective, are the Internet and the mobile phone,” he says. “Apple’s iPhone 5, and LTE in general, represents the true convergence of those two trends. I think that’s going to be very, very profound. It’s going to change the communications landscape globally for the service providers and for the enterprise.”

Why is that? “Architectures and business models change when you hit the Internet,” Ory says. “So I think you’re going to see the largest communications service providers in the world undergo transformations of architectures, technologies, business models, relationships with customers, and brand. We talk about it as the end of telecommunications and the rise of IP-communication service providers—and they’re all going to be cloud providers.”

In other words, Ory sees wireless carriers changing their entire network infrastructure over to IP-based technologies—which are, of course, what Acme Packet sells, in the form of “session border controllers” that sit at the edges of private networks to reorganize data packets as they move around the Internet. The idea behind a session-based approach is to … Next Page »

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