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Internet of Things market thriving; Sprint's T-Mobile acquisition next in line?

This week in telecom news, a T-Mobile/Sprint merger may be in the works after a reported $32 billion acquisition deal by Sprint, and the latest IDC report estimates the Internet of Things market will reach $7.1 trillion by 2020.

This week in telecom news, rumors are flying about a Sprint acquisition of T-Mobile/Sprint as the two mobile carriers reportedly reached a $32 billion deal. But the operators may face regulatory opposition from the Federal Communications Commission and the Department of Justice. Meanwhile, the International Data Corporation reports that the Internet of Things market is rapidly growing. The global IoT market is expected to hit $7.1 trillion in 2020.

Netflix backed down from displaying error messages blaming Internet Service Providers for congested networks after Verizon threated a lawsuit. The carrier and streaming service are squabbling over who is truly responsible for a customer's playback experience. Fiber-optic network vendor Ciena Corp. is branching out from its usual carrier customer base to include infrastructure as a service customers. The vendor is projecting strong growth as a result. Read on for more on what you need to know in telecom news.

Sprint and T-Mobile head toward merger

Sprint and T-Mobile have reportedly reached a $32 billion agreement for Sprint to acquire T-Mobile, which would lead to combining the third and fourth biggest mobile carriers in the U.S.

Japan's Softbank, which owns Sprint, and Deutsche Telekom, which owns 67% of T-Mobile, must still negotiate the details of the agreement, including financing and termination fee payment if the merger is blocked by regulators, according to Reuters. Reports are that the agreement currently breaks down to Sprint paying $40 per share to buy T-Mobile, although JP Morgan analyst Hannes Wittig told Reuters the reported $40 per share price tag seemed low.

"T-Mobile U.S. should be worth more than that given that the synergies should exceed $20 billion. Deutsche Telekom would share some of the execution risk and Sprint would be getting control … Somewhere in the high 40s would be more appropriate," he said.

The biggest risk to the merger isn't the price, but the regulatory hurdles the carriers may face from the Federal Communications Commission (FCC) and the Department of Justice (DOJ). The FCC and DOJ have expressed the desire to have at least two carrier competitors in the market against AT&T and Verizon. Regulators previously rejected AT&T's bid to buy T-Mobile for $39 billion three years ago.

Internet of Things market to grow by $5 trillion in 2020

The Internet of Things (IoT) market is expected to hit $7.1 trillion by 2020, according to a new report from International Data Corporation (IDC).

The global IoT market was worth $1.9 trillion in 2013 and the global IoT installed base is estimated to see a compound annual growth rate of 17.5% from 2013 to 2020, according to the report.

"The worldwide IoT market is exploding," Carrie MacGillivray, program vice president of mobile services, IoT and network infrastructure at IDC said in a press release. "IoT solutions are at the heart of IDC's view of 3rd Platform and the four pillars -- mobility, social business, big data/analytics and the cloud -- resulting in millions of applications available to billions of endpoints."

According to the report, businesses are interested in IoT because of the efficiencies, business process implications and revenue opportunities it can create.

"Businesses are taking the necessary steps to gain a deeper understanding of IoT and the overall value," said Vernon Turner, senior vice president of IDC's enterprise infrastructure, consumer, network, telecom and sustainability research, in a statement.

The report also found that developed regions represent 90% of installed units. The IDC expects IoT competition to intensify around service offerings that incorporate smart analytics and applications.

Verizon has also chimed in on IoT's growing market. Mark Bartolomeo, vice president of connected solutions at Verizon said IoT revenue has grown over 100% for the provider.

Bartolomeo told the Wall Street Journal's CIO Journal he sees interest in IoT in six sectors: Energy, transportation, digital cities, health care, financial services and retail.

Netflix drops congestion notices after Verizon threatens suit

Netflix will discontinue network congestion error messages that placed blame on customers' ISPs after Verizon called the lawyers and threatened legal action.

Verizon filed a cease and desist letter on June 5 over messages displayed on Netflix's site when Verizon customers experienced a slow connection, which read "The Verizon network is crowded right now. Adjusting video for smoother playback."

"There is no basis for Netflix to assert that issues with respect to playback of any particular video session are attributable solely to the Verizon network," wrote Randal S. Milch, Verizon's attorney, in the letter. "To now accuse last-mile ISPs of being solely responsible for service issues that may relate to congestion on peering circuits stemming from network arbitrage by upstream providers is self-serving, deceptive, inaccurate and an unfair business practice."

Netflix responded in a blog Monday, saying the messages were part of a transparency campaign to inform consumers about their Internet speeds. The error messages let consumers know when their experience was being degraded "due to a lack of capacity into their broadband provider's network."

"We pay some of the world’s largest transit networks to deliver Netflix video right to the front door of an ISP. Where the problem occurs is at that door -- the interconnection point -- when the broadband provider hasn't provided enough capacity to accommodate the traffic their customer requested," Netflix said in its blog post.

Netflix signed an interconnect deal with Verizon in April, similar to the deal Netflix made with Comcast in February, to ensure a better connection on the provider's network.

Ciena Corp. diversifies carrier customer base to include IaaS companies

Fiber-optic network vendor Ciena Corp., based in Hanover, Maryland, is broadening its customer base and forecasting strong growth for that reason, according to Reuters. Ciena has become less concentrated around AT&T and Verizon, its top two carrier customers, and branched out. The two carriers still account for 60% of Ciena's revenue, but that's down from 65% in fiscal 2013. The company's diversification includes healthcare, energy, finance and Web 2.0 companies.

Internationally, things are going well, as 42% of Ciena's revenue came from non-U.S. customers, according to Wall St. CheatSheet.

Despite its efforts to diversify, Ciena is benefitting from the U.S. telecom and cable companies' increased network spending to meet increasing demand for faster Internet connections. Financial analysts point out that infrastructure as a service companies are driving traffic growth, and as cloud services grow, optical backbones are needed to handle the load.

True, Ciena is still losing money, but it's losing less money, and its stock price has been trending upward.

"As the shift continues toward on-demand networking models and as we continue to diversify our business, we expect to deliver steadily improving financial performance, including performance in the second half of the year that is stronger than the first half," Ciena president and CEO Gary B. Smith said when the company released its second quarter 2014 results.

Ciena competes with Huawei, Juniper Networks and ZTE Corp., among others. -- Kate Gerwig

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