Akamai For Sale to a Telco? Not Likely

August 20th, 2010 by · 6 Comments

According to various reports originating with option trading activity, there are rumors circulating that Akamai (NASDAQ:AKAM, news, filings) could be a takeover target.  The likely buyer?  Obviously a telco or a cable company according to Silicon Alley Insider.    I know I’m something of an M&A groupie at times, but there are merger possibilities out there that just make no sense, and this is one of them.  No, it’s not that a telco or cable wouldn’t find Akamai of value, nor is it that they couldn’t find some cost savings, nor that the combined company couldn’t kick some major ass.  It’s just that pesky net neutrality thing, and the sloppiness of the conversation around it.

You see, as a layer of caching and local delivery of bits built on top of existing infrastructure, Akamai is a CDN juggernaut as an independent entity with the scale to dominate both in terms of raw bits and managed services.  But as an adjunct to a Verizon or Comcast or another major last mile provider, they are nothing more than a premium fast lane that charges additional money from content providers by bypassing much of  that company’s own infrastructure.  There would be the traditional internet connectivity, and then there would be the faster way where you pay more money to the last mile provider who will then cache your data close to the consumer for maximum speed.  And why invest in the traditional internet when you can make more money from the fast lane bypassing it?  If you think the folks upset by the Google/Verizon detente were upset last week, just imagine what they’d think of an Akamai/Verizon behemoth that not only owns a last mile bottleneck to a solid fraction of the country but holds marketshare in the CDN sector of, what is it these days 80%?

Without certainty in the network neutrality regulatory domain, I don’t think any last mile provider can take the risk of buying Akamai strategically because it may provoke a change in the rules that would negate all the benefits or worse.  The wording of proposed network neutrality legislation is generally quite sloppy, and fails to understand that fast lanes already exist throughout the internet in a variety of forms.  Why do you think we haven’t heard a peep out of AT&T’s CDN in so long?  It isn’t that they don’t have the money to put behind it, or that they can’t find anyone to buy CDN services from them.  If it were successful and visible, it would become giant target.  Besides, if you think the NBC/Comcast thing caused a ruckus, think about NBC/Akamai/Comcast for a moment.

Any large last-mile telco or cable that tried to buy Akamai in the current environment would find itself the subject of all sorts of investigations.  They don’t need or want that, and hence I think the options traders are barking up the wrong tree.

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Categories: Cable · Content Distribution · ILECs, PTTs · Mergers and Acquisitions

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6 Comments So Far

  • Mei Ye says:

    How about Google is the buyer? I think it make sense with GoogleTV and YouTube.

    • Max says:

      The loss of Akamai’s status as a neutral/noncompeting player in its traditional host-customers’ core product markets would probably seriously undermine if not destroy its established endosymbiotic business & operations model. Of course, that vast/sprawling collection of nodes could conceivably come in very handy for the distribution of something other than traffic.

      …and Google’s already got one.

  • Anonymous says:

    The rumor is GOOG is acquiring. And I could see the master predator CSCO use some of their cash to gobble this growth. I agree it wont be VZ….but that doesnt mean it wont happen. If I were GOOG or CSCO or a host of other old school tech companies….I would buy AKAM…and RVBD….and FFIV….and VMW….

  • carlk says:

    Is Dan really an “IDIOT”?


    As for rumors, how silly is that while insiders are still buying? OTOH, they’ll do whatever they have to-lie, cheat and steal-to bring in enough sheep to their slaughterhouse.

    Nope, this is purely Goldman in addition to others’ calls that 10-15 percent next year growth is still likely, and them moving the price up to their new “targets” in anticipation of such risky propositions.

    Good job, Dan. imo

  • Anon says:

    Great company & liked by it’s customers (a sad rarity in the network services space). However, at (per yahoo / capitalIQ) 22x EBITDA and 55x Earnings, virtually no company in the telco space can buy them without substantial, almost unprecedented dilution. Not going to happen. I suppose T or VZ could fold them in in a “non material” transaction. But why – they already own last mile connections to everyone in their home market (USA) and peer. Akamai exists to let everyone else get high quality access to AT&T and VZ eyeballs….

  • carlk says:

    As this website becomes more popular by its creator’s own admission, is its content becoming less significant? This assumes I somehow missed the following video presentation which I am including.

    Please give me sufficient VIDEO CONTENT that takes “several decades” to pan out according to underlying trends which cost original, as well as fast forward STAKEHOLDERS tens of billions of capital!

    It certainly takes a special type of “GAMBLER,” aka “SPECULATOR,” who could endure such capital decimation over time without completely bankrupting public degenerates that might have been stupid enough to bet along side of them.

    Yup, it’s all about the LONG TERM!

    Love him, hate him or continuously being deceived by a vision hardly panning out, the man is a VISIONARY and partial genius.

    Now, if only the SOB could get his STOCK PRICE up!

    Why? Because in the long term, and even the short term for men like Scott and Buffett, they’re fricken DEAD!

    In the final analysis, it’s all about the “BANDWIDTH” those internet free loading backbone riders like AKAM, won’t get their slippery hands on.

    Danny Rayburn is NO IDIOT notwithstanding the back peddling that he did, POST his Brightcove BLUNDER remarks! imo


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