Eye on M&A
Telecom and tech companies tackle strategic acquisitions despite economy
Sugarplums and a hot potato
The gut-punched economy is staggering from industry crises and post-traumatic bank failures, and the mergers and acquisitions market is down by half, as compared to spring 2008, according to investment advisers Houlihan Lokey Howard and Zukin. But companies are still finding and making strategic buys.
When circumstances created low-hanging fruit, Deloitte LLP and AT&T Inc. were quick to act on the opportunity. Deloitte acquired BearingPoint’s public-sector practice out of bankruptcy for $350 million. And when the Justice Department ordered Verizon Wireless to sell certain assets as a condition of its acquisition of Alltel, AT&T ponied up $2.35 billion for wireless properties, licenses, network assets and 1.5 million subscribers.
In contrast, Bivio Networks Inc.’s recent acquisition was a strategic business decision made after years of partnering with Italian deep packet inspection application developer FlowInspect SpA. Despite privacy concerns surrounding DPI’s potential for abuse, the technology enhancements offered by the merger will pay off with new service offerings for government clients, said Elan Amir, Bivio’s president and chief executive officer.
DPI lets network administrators look at a packet’s routing information and content to protect networks from viruses, spam, intrusions and noncompliance with security policies. However, before the payload can be examined, data packets consisting of a file or message must be reassembled to create flow — typically a network-intensive task, said Chenxi Wang, a principal analyst at Forrester Research.
“What Bivio does is make that task easy to do,” she said. The company concentrates on handling such low-level tasks and letting the user specify the high-level policies, she added.
Historically, each application for which DPI was implemented required a separate device to examine a separate data stream traveling an explicitly rerouted path, which added complexity and latency.
Bivio’s product allows multiple applications to be located on the same appliance and monitor a single stream of unimpeded data, comparing it against policies set by multiple applications and enforcing those policies. That capability was a significant factor in the Defense Information Systems Agency’s decision to deploy the Bivio 2000 network appliance as a multifunctional platform on the Defense Information Systems Network, Amir said.
FlowInspect’s customers include government agencies, but its major clients have been Internet service providers, among the first businesses to implement programmable DPI products. “ISPs love it,” Wang said. “The profit margin on bandwidth has been dropping lower and lower, so they need to offer value-added services to increase revenue. To do that, they need to understand the kind of traffic they have on their networks and capitalize on their resources. They need to be able to charge for the use of specific services.”
Bivio’s technology has been integrated into FlowInspect’s offerings for more than a year. This summer, FlowInspect’s technology will be repurposed for government use.
“You’ll see product announcements over the next three to six months,” Amir said. Some will be familiar, “but there will be some new product announcements in the area of law enforcement and government security.”
The acquisition will also extend Bivio’s reach into the ISP market, an area that until recently held little appeal, Amir said. “The market was saturated, and the technology challenges were not that interesting.” The first generations of DPI products focused almost exclusively on traffic management, he added. “It was just enhanced quality of service.”
However, as competition intensified, ISPs began looking for the next technological leap and a way to leverage their core assets — their networks — to provide new services and connect usage with pricing and billing. “That’s when we recognized that this was an area we wanted to get into,” Amir said.
Chancing the deep fryer
However one views the business case for DPI, the controversy surrounding the technology is undeniable. As the enabler of Internet traffic management, it lies at the heart of the issue of net neutrality and fuels the concerns of privacy advocates.
“DPI poses serious challenges both to privacy and to the openness and innovation that are the hallmark of the Internet,” said Leslie Harris, president and CEO of the Center for Democracy and Technology, in testimony before the House Energy and Commerce Committee’s Communications, Technology and the Internet Subcommittee in April.
While lauding DPI’s ability to help networks block viruses, worms and other intrusions and enable “better compliance by Internet service providers with warrants authorizing electronic message intercepts by law enforcement,” subcommittee chairman Rep. Rick Boucher (D-Va.), also called the technology’s potential for enabling privacy intrusion “nothing short of frightening.”
The mistrust of DPI is not confined to the United States. “It is not clear that examination of content is necessary for network management and may constitute an unreasonable invasion of an individual’s privacy,” said Jennifer Stoddart, Canada’s privacy commissioner. Furthermore, it is the technology the Chinese government uses to censor Internet traffic.
But just as an axe can be used to bash in your front door or cut firewood to heat your home, so, too, does DPI’s use depend on the user.
“DPI is a networking technology that can protect your network from intrusions and viruses, analyze traffic, any number of things,” Amir said. “Depending on what the policies are, it can be abused, but that potential is no different than what you encounter any time you make an e-purchase or [put information in] an e-health record.”
“As network operators, Internet service providers and corporations alike are increasingly dependent on the efficiency of their networks and the applications that run on them, the need to manage bandwidth and control the complexity and security of communications becomes paramount,” Wang wrote in her recent report “Deep Packet Inspection is Ready for Prime Time.” “DPI provides exactly the means for such purposes.”
And it does that in real time, with no loss of throughput. Among its other capabilities, DPI makes distributed denial-of-service attacks nearly impossible and makes network access and policies easy to enforce. “It gives network administrators and architects a powerful tool,” Amir said. And it’s becoming a staple for organizations such as DISA that have global wide-area networks to protect and administer.
“User organizations that seek better network management and compliance should view DPI as an essential technology,” Wang said.