Ericsson to buy cloud communications company Vonage for $6.2B, expects the deal to close in the first half of 2022
Simon Johnson / Reuters :
Context & Ripple Effects
This is the deal that anchored Ericsson's push beyond radio networks into enterprise software: it followed the Cradlepoint acquisition for wireless WAN gear and folded in Vonage's contact-center stack, which Vonage itself had assembled by paying $350M for NewVoiceMedia. At $6.2B it was Ericsson's largest bet that 5G connectivity alone wouldn't carry the company's growth.
The subsequent record gives this announcement an unusually clear verdict: Vonage drew a $100M FTC settlement over cancellation obstacles and surprise fees within a year of closing, and Ericsson has since written the purchase down twice — a $2.9B charge in 2023 plus another $1.1B noncash impairment — while selling the Iconectiv unit to Koch for $1B to prune the portfolio.
First-order effects
- Vonage shareholders are cashed out at $6.2B, and Ericsson absorbs a cloud communications platform with known compliance baggage — the FTC allegations predate the close and land on Ericsson's balance sheet and reputation once it does.
Second-order effects
- Rival network equipment vendors face pressure to answer with their own enterprise-software acquisitions rather than compete on radios alone, since Ericsson just paid a premium to own the customer-facing application layer.
Third-order effects
- Ericsson's later write-downs and the Iconectiv divestiture point to a structural lesson: telecom gear makers buying into cloud software at cycle-top valuations tend to destroy more value than the diversification adds, making future such deals harder to justify to investors.
The trend: Telecom equipment makers are buying their way into enterprise cloud software to escape hardware commoditization, with Ericsson's Vonage deal becoming the cautionary benchmark for how badly those bets can impair.