The Outlook for Session Border Controllers

It was a busy summer for those in the session border controller arena. But just what the action means for this equipment space as a whole still is unclear.

In early June, Acme Packet Inc. announced it had filed a registration statement with the SEC relating to a proposed IPO. Then, in July, AudioCodes Ltd. revealed plans to buy session border controller supplier Netrake Corp. for up to $11 million.

The move from Acme Packet was a bit of a surprise, considering Vonage Holdings Corp.’s disastrous IPO just weeks earlier. But Joe McGarvey, principal analyst at Current Analysis Inc., says “Acme is far and away the leader in the [session border controller] space, and the company seems to be pulling in sufficient enough revenue to justify an IPO.”

Indeed, Infonetics Research ranks Acme Packet No. 1, with more than half of the market share, in the session border controller space. Kevin Mitchell, director of solutions marketing at Acme Packet, says the company saw revenue for the first half of 2006 shoot up to $38.1 million — which was more revenue than the company saw for all of 2005, a 128 percent increase yielding $11.3 million in profits for the first half of 2006. Mitchell also notes that Acme Packet, which ended the second quarter of 2006 with more than $33 million in cash, also recently added nine new customers, as noted in an updated IPO filing issued in August.

According to Mitchell, Acme Packet’s move to do an IPO was driven more by a desire to further establish its brand than to raise money, but that, as of early August, the company intended to raise approximately $85 million through its IPO on the Nasdaq Global Market, where it will be listed under the symbol “APKT.”

In a conversation with xchange in mid-July, McGarvey added that the market, overall, was largely indifferent to the news of Acme Packet’s pending IPO. He attributed that indifference to the lack of a solid understanding of session border controllers by analysts and the media. As noted on the Current Analysis Web site, session border controllers are designed to enable VoIP peering between carriers or between carriers and enterprises. Some of a session border controller’s functionality can be delivered by other network devices, such as routers and firewalls, prompting speculation that the products will have a short lifecycle as standalone components.

Still, forecasts for session border controllers are strong. According to Infonetics Research, the session border controller segment is up 29 percent sequentially and 99 percent from the first quarter of 2005. Infonetics expects the session border controller opportunity to grow from $86 million in 2005 to $613 million in 2009.

The folks at Newport Networks are also very upbeat about the future prospects for session border controllers. “We see a buoyant market this year,” Mike Wilkinson, vice president of marketing at Newport Networks, told xchange in a mid-July interview in which he and CTO Alan Nunn emphasized the company’s intention to stay independent despite the trend toward session border controller vendor acquisition in the past few years.

Consolidation in the session border controller space has included Netcentrex’s acquisition in May by Comverse Technology Inc. for approximately $159 million in cash. Ditech Communications Corp. last year acquired privately held session border controller provider Jasomi Networks.

Wilkinson adds that session border controllers have a place in the network today and will be significant building blocks for the next phase of communications, addressing such applications as lawful intercept, more sophisticated enterprise applications, and more.

But how that optimism from Infonetics and Newport Networks squares with AudioCodes’ acquisition of Netrake is unclear.

“The fact that the technology is being acquired could be interpreted as a positive for the industry as a whole,” says McGarvey of Current Analysis. “On the other hand, the recent acquisition of Netrake by AudioCodes could be interpreted as troubling for the overall industry. Few top-tier equipment providers have [session border controller] technology of their own. The fact that none of them seemed to be interested in Netrake (considering that the company sold for $10 million) would have to be interpreted as either a sign of indifference by equipment makers toward the overall market or Netrake in particular.”

He adds that another bad sign for the session border controller space is Juniper Networks Inc.’s “end of lifeing” on the VF 3000 product it got through its acquisition of Kagoor last year.

Juniper spokesman Brendan Hayes tells xchange that Juniper has “decided to exit the standalone session border controller business and focus our efforts on integrating this technology into the Juniper routing platforms. We believe the greatest leverage for the [session border controller] technology will come from integration into our routing products, and we feel now is the right time to prioritize development in that direction to ensure we are well placed to deliver to customer requirements in the long term.” Hayes adds that Juniper has a standard end-of-life policy allowing customers to continue to purchase products up to six months after the end-of-life notice and that all existing VF-series customers will continue to be supported for five years.

Meanwhile, Mitchell says that Cisco Systems Inc. announced last December its plans to offer a blade with session border controller functionality for one of its routers, but that Cisco so far has been mum on when that blade will become available, or even reach Cisco labs.

Cisco spokesman Wilson Craig says the integrated session border controller on the Cisco XC 12000 “is currently in trials with a number of customers” and that integration of session border controller functionality into other Cisco routing platforms has not yet been announced.

As Cisco gets into the session border controller space, that certainly will affect what happens to standalone border controller vendors. “The landscape is shifting,” notes Acme Packet’s Mitchell.

Dan Dearing, vice president of marketing at NexTone Communications, another strong player in the session border controller space, seconds that emotion. As the industry progresses and the session border controller players change, so too will the functionality of the session border controller — whether it be a standalone product or a feature of a larger solution. Dearing believes session border controllers will remain standalone platforms, although he says there are parts of these products — like NATing — that are being subsumed over time by routers. “But if you look at signaling interoperability, signaling interworking, session management that [a session border controller] does, it’s unlikely that a router would subsume that,” says Dearing of NexTone, which aims to be cash-flow-positive in mid-2007.

Tom Phelan, principle architect at Sonus Networks, a vendor which comes to this discussion from a softswitch background, says session border controllers were a good start, but are very limited in their functionality. “In Sonus’ view, [session border controllers] are an edge element designed to secure the network; however, in many cases, they lack several features that are critical to high-volume VoIP and media services. First, they are managed separately from the rest of the VoIP system, creating undue complexity in the network; and second, they lack telephony-style call admission control, which is critical when applied to high-volume carrier-class networks.”