Microsoft doubles down on 5G and the edge with Metaswitch purchase

Summary: Microsoft made another network-focused move with the purchase of UK- based network software pioneer Metaswitch. The acquisition bolsters its edge and 5G portfolio, following on from last month’s purchase of Affirmed Networks.

Details: No financial details were disclosed. Metaswitch is well known in the network equipment world as an early pioneer of the use of software in networks. Founded by ex-IBMers in 1981, the company established its reputation in the early 2000s when VoIP began to be widely used. Metaswitch’s softswitches were used for terminating, routing and managing voice calls, showing the potential of software to replace traditional network equipment. Metaswitch continues to focus on voice but moved its focus to cloud-native software. For example, it has a product called Fusion Core which according to MetaSwitch enables operators to move from 4G to 5G without having to run two different network cores.

Background: Metaswitch was backed by private equity, with Sequoia and Francisco Partners taking a stake in the business in 2008. The latest financials show solid but unspectacular performance. In 2019, the company had revenues of $180m, up 2.5% from the previous year. To put that in context, the revenues were about $100m at the time of the investment. Despite the low revenue growth, Metaswitch gained 40 new operators in 2019 and saw meaningful growth for a cloud-based service that blocks robocalls as well as scaling a cloud-native service for a Tier 1 US mobile operator to 10mn users. Rumors put the price tag for the acquisition at just north of $1b.

Angle: With this deal, we can start to see the shape of Microsoft’s 5G and edge strategy. Network providers believe the only way they can scale the network edge for 5G is through virtualization. Microsoft hopes Affirmed and Metaswitch will give it the products and crucially the expertise it needs to be the leading cloud platform for carriers (who are the main customers for both these companies). Applications that are built for 5G networks will need to run with cloud infrastructure that can scale and access network capacity seamlessly. This is exactly the pain point that Microsoft wants to solve with these acquisitions.

When we looked at Microsoft’s purchase of Affirmed Networks last month, we noted that Microsoft has a long history of haphazard acquisitions and wondered if Affirmed fell in that category. This deal almost, but not quite silences that doubt. With the latest acquisition, Microsoft shows it is serious about building a full portfolio of 5G/edge services and taking on traditional network vendors like Ericsson, Nokia and Huawei.

Company Briefing by Structure Research

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5G  |  Azure  |  M&A  |  Microsoft  |  softswitch  |  software-defined network  |  Structure Research  |  wireless