In a surprise move last week, CommScope emerged as the winning bidder for Casa Systems’ cable assets, edging out Vecima Networks and Harmonic. The winning bid of $45.1M represented a significant premium over Vecima’s initial stalking horse bid of $20M.
The move is interesting because CommScope is known to be exploring a sale of its ANS (Access Network Solutions) Division in an effort to reduce a debt load pushing $9B. CommScope announced its intent to acquire ARRIS in 2018 and completed the acquisition in early 2019 for $7.4 B. From 2018 to 2019, ARRIS’ CCAP revenue plummeted from $739M in 2018 to $442M in 2019, as operators completed their DOCSIS 3.1 upgrades and, more critically, Comcast capped its CCAP purchases in favor of transitioning to Virtual CMTS and Remote PHY. CommScope’s CCAP revenue improved slightly in 2020 and 2021 but has since declined further, reaching $293M in 2023.
Meanwhile, Casa, which from 2014-2018 generated cumulative revenue of just under $1.3B from its C40G and C100G CMTS and CCAP platforms and secured a significant footprint with Charter, Claro, Rogers, and other tier 1 operators, was unable to rebound from the 1-2 punch of a softer market for DOCSIS licenses and Charter’s announcement in March 2023 that Casa would be excluded from its massive network upgrade project. Additionally, Casa was unable to find enough traction for its vCMTS and DAA products to offset declining license revenue for its integrated CCAP platforms, although the company does have some DAA traction with Rogers Communications, Vodafone, Liberty Global, and Claro Colombia.
So, with both vendors seeing declining revenues for their CCAP platforms and an industry that is clearly moving away from integrated CCAP platforms toward vCMTS and Remote PHY, where both vendors have lagged behind their primary competitors, Harmonic and Vecima Networks, why would CommScope make this deal? And, beyond price, why would Vecima walk away from a deal that could have accelerated the market readiness of its own vCMTS platform?
Let’s consider a few different rationales:
- CommScope needs to amass and scale vCMTS deployments: We have emphasized this many times, but the industry is still in the early stages of transitioning to vCMTS platforms. However, the addressable market of operators, and the larger DOCSIS and HFC market, are declining as more operators gradually transition to fiber. Therefore, we don’t expect the combined vCMTS and Remote PHY Device (RPD) market to ever reach to revenue levels seen in 2018 and prior for integrated CCAP platforms. With operators pursuing various strategies and combinations of DOCSIS and PON in their access networks, it is imperative for a company like CommScope to roll up as many potential vCMTS opportunities as possible—particularly among those operators committed to a strategy of continuing to rely on DOCSIS and HFC for the bulk of their residential connections. And Casa does count Rogers Communications and Claro Colombia as key vCMTS customers. Back in October 2023, CommScope did announce its first customer win for its vCore platform. However, there has been no follow-up announcement regarding a formal contract or additional wins since then, which leads us to our second reason.
- CommScope’s vCore product is perhaps not as far along as it needs to be: Development on CommScope’s vCore vCMTS platform has been on-again, off-again over the last few years. Initially, virtualization of MAC functions was run on the E6000 chassis, ostensibly to support RPD rollouts by Cox Communications, among others. The idea was then to move these capabilities onto COTS servers to scale the CMTS VNFs (Virtual Network Functions) horizontally as new DAA service groups were launched. However, porting existing software, designed to function alongside the dedicated hardware of an integrated CCAP platform, onto servers is a challenging task. There was word throughout this process that CommScope was having a difficult time completing this development. Ongoing personnel and strategy changes certainly didn’t help matters, either.
So, perhaps the addition of Casa’s Axyom vCMTS and current customer base gives CommScope not only the opportunity to scale existing Tier 1 DAA customers but also to potentially rely on the Axyom as its primary vCMTS platform in the short term while it continues to improve the performance of its vCore platform. We speculated in a previous blog that this was the motivation behind Vecima’s interest in Casa, with Vecima announcing the availability of its own Entra vCMTS in the fourth quarter of this year. Ultimately, we expect elements of the Axyom and vCore platforms to be integrated into a single software stack to avoid parallel development efforts that could sidetrack operator deployments.
- Casa brings additional short-term revenue opportunities that improve the ANS valuation: Despite the clear trend towards virtualization at the edge, there will also be a DOCSIS 3.1+ software upgrade cycle on existing CCAP platforms that could help to prolong those products’ lifespans and provide a short-term boost to revenue. We assume that the software upgrades necessary to support the additional OFDM channels will be quite a bit less than purchasing full licenses for the additional spectrum. Nevertheless, there will be enough new spectrum and licenses purchased on existing CCAP platforms to support mid- and high-split efforts, as well as DOCSIS 3.1+. This stabilization of short-term revenue, combined with the continuing traction Casa was getting with its vBNG product for FTTH deployments, could be enough to improve the valuation of the ANS Division and make a sale with more favorable terms possible.
Ultimately, CommScope’s decision to spend $45.1M on Casa’s cable assets and Vecima’s decision to walk away almost certainly comes down to how big each company estimates the vCMTS market will grow to and how much of that market can each vendor capture. Our current forecast, published in January, pegs the vCMTS market to grow steadily to $367M worldwide by 2028. That is a meaningful market on an annual basis. For CommScope, which experienced years of $1B+ revenues for its CMTS and CCAP platforms, potentially growing a product to that size is well within their comfort level. For Vecima, scaling to that size would have been very possible, but would also involve a significant amount of risk and potential potholes along the way. Vecima is currently scaling its RPD and R-OLT products to meet increasing Tier-1 demand. Absorbing Casa’s products, customer base, and employees could have siphoned away the momentum the company has already built.
Related blog: CommScope Also has Bigger PON Ambitions with Casa
