Market Insight

Pace continues gateway push with 2wire aquisition

July 26, 2010

Daniel Simmons Daniel Simmons Executive Director, Enterprise & Residential Communications Technology, IHS Markit

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UK set-top box (STB) manufacturer Pace has strengthened its move into the residential gateway space with the acquisition of 2wire. Pace will pay $475m for the US-based company, which provides broadband gateways for the service provider market.

Whilst this acquisition will see Pace make a substantial play in the gateway market, 2wire's technology and customer relationships could be exploited in several ways to further grow Pace's core STB business. Offering both STBs and gateways is a critical part of many major pay TV STB vendors' business models. Motorola, Cisco and Thomson all offer both DSL and cable gateways as well as STB products to their customers.

Pace entered the gateway space in March 2010 with its €12.5m acquisition of French vendor Bewan. Whilst Pace gained gateway technology from Bewan, 2wire will provide a much larger portfolio of telco-customer relationships, which have so far eluded Pace. Compared with the rest of its product mix, Pace has had least success in building the IPTV business acquired with the rest of Philips' STB division in 2008. 2wire's relationships with AT&T, Bell Canada and SingTel for gateways may provide Pace the opportunity to supply STBs for their high value Microsoft Mediaroom-based IPTV services.

With the IPTV STB market peaking in volume terms in 2009 at 14.4m units and being be worth just 12.2m units per year until 2014 on average, the volume opportunity for IPTV is limited. The major opportunity for Pace afforded by 2wire will be to maintain its position in its core DTH and cable markets with next generation connected home STBs. Pan-European cable operator UPC, a long standing Pace customer, recently announced that it will launch a content hub combining the gateway and STB into a single box with all-IP-based in-home TV signal distribution. Whilst Samsung has won the initial contract to supply UPCs content hubs, Pace's acquired gateway technology will enable it to launch similar devices.



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