Last week, Ericsson announced a $1.1 billion impairment charge on Vonage, which follows a $2.92 billion write-down in November 2023.
Impairment accounting estimates the market value of an investment, so when a company reports an impairment on an investment, it means that its value has decreased by the amount stated.
Overall, Vonage’s value has fallen by $4.02 billion.
In addition, Ericsson appears to have lost nearly 65 percent of its original investment by acquiring Vonage for $6.2 billion.
The news comes after Vonage announced in April a five percent year-on-year decline in overall revenue and reduced its operations “in some countries.”
By the time, Borje Ekholm, CEO of Ericssonexplained:
The development of the group (Vonage) is significantly behind your and our initial expectations.
So what went wrong and what’s next?
The acquisition of Ericsson and Vonage: 2 years later
With the acquisition of Vonage, Ericsson acquired three core solutions: a CPaaS, CCaaS and UCaaS platform.
Ericsson bought Vonage primarily because of its CPaaS APIs, as this part of Vonage’s business fits well with Ericsson’s core technology for mobile operators.
For example, Ericsson has implemented some exciting innovations with Vonage CPaaS, such as combining these APIs with its 5G networks to provide a global network platform.
The platform enables companies to integrate 5G capabilities – including speed, latency and quality on demand – into their apps and processes.
This is a big deal for many CPaaS buyers. But two years later, not much has changed from a CCaaS and UCaaS perspective.
Of course, the product team could soon leverage the Global Network Platform APIs on the backend of the UCaaS and CCaaS solutions to better manage the network experience, improving the mobility of Vonage’s enterprise communications systems.
Although mobility is excellent, it is not a major argument in the communications sector.
Since Ericsson first considered acquiring Vonage, a lot has changed in the UCaaS and CCaaS markets.
In conversation with CX Today Rob Kurver, Founding Partner of the CPaaS Acceleration Alliancesaid: “UCaaS has become commodified in recent years after Microsoft won the pandemic – more or less. So what are you doing there?
Then there is the CCaaS part, which has an interesting offering, but it is strange that Ericsson is in the market and competing with its customers.
Perhaps Ericsson thought it could sell the CCaaS space, as many expected – and still expect – significant consolidation in this space.
Still, it raises a billion-dollar question: Why didn’t Ericsson start a pure CPaaS provider instead?
Should Vonage have engaged the right CPaaS provider?
There are hundreds of players in the CPaaS industry, but only a few have a global reach. Cisco Webex, Infobip, Sinch, Twilio and – of course – Vonage are perhaps the five most prominent.
According to Kurver, Ericsson considered this measure necessary even in the early stages of its acquisition process. He said:
I know they were looking for alternatives to Vonage. But think about Ericsson as a company; it’s big and corporate. They were looking for something that was organized enough that they could manage it. So they went with one of the big guys.
Each of the four “big” alternatives had its critics. Webex, for example, had only recently entered the market with the acquisition of IMImobile, while Infobip perhaps seemed “too small” because it had only recently come to the forefront of the market.
Likewise, according to Kurver, Sinch was not what it is today two years ago. “Also, the game of network API operators is not taken into account at all. That’s not what they focus on.”
“Then there’s Twilio, which was never really an option. They’ve gone through ‘interesting changes’ in the last few years.”
This includes an even bigger drop in market cap than Vonage. In fact, its market cap was $46.96 billion in 2021; now it is $9.52 billion.
Given all this – and Vonage’s solid relationships with carriers – it’s understandable why Ericsson chose this vendor, and Kurver remains convinced that the move “makes sense.”
“What I still hear and see is that the integration takes time, but Ericsson is very serious about it and the new CEO… it’s working.
“But it was just a lot of money. $6.2 billion … that’s a lot of money.”
What to expect from Vonage in the future
CPaaS and the Global Network platform are Vonage’s clear priorities. The provider will invest significant time and resources in building its global developer community to reach more enterprises with its advanced network capabilities and monetize 5G in new ways.
The deal Ericsson struck with AWS earlier this year to make Vonage’s network APIs available to AWS developers through the cloud giant’s marketplace is one example of how the company is already doing this.
In the meantime, another element of Vonage’s portfolio could be added: the conversational AI space, which is still viewed positively by analysts and end users.
However, Vonage’s reduction in its global operations is a warning sign for the future of its UCaaS and CCaaS business.
In fact, Vonage will likely narrow its focus and concentrate on its core corporate communications regions rather than sprawling out. Given its declining revenues, that’s a legitimate concern.
However, Ericsson could also limit its losses and sell its CCaaS and UCaaS businesses to the highest bidder.
As for impairments, we hope this is the last of them.
