Market Consolidation Alone Is Not the Answer to Wi-Fi Testing’s Pain Points

By Andrew Spivey | 2Q 2024 | IN-7324

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Market leading network test and validation solution provider Keysight Technologies has agreed to acquire its innovative rival Spirent Communications for US$1.5 billion, pending antitrust approval. While integrating Spirent will enhance Keysight's ability to provide end-to-end testing solutions for its customers, this deal will also result in reduced customer choice and may potentially hinder technological innovation. It also does little to address the persistent challenges the industry faces, namely high costs, ecosystem complexity, and resulting delayed time to market.

Testing and verification of performance is a necessary step for all players in the Wi-Fi industry, from the System-on-Chip (SoC) designers and Customer Premises Equipment (CPE) vendors creating the hardware, to the Internet Service Providers (ISPs) and System Integrators (SIs) deploying it. Testing is primarily required for the following needs:

• Equipment Certification: Validating equipment with authenticated test providers is a vital step for product certification.
• Demonstrate Abilities: Potential buyers need verification that products possess the capabilities they claim to have.
• Identify Issues: Discovering issues before deployment averts expensive product replacement and reputational damage.

Given the centrality of Wi-Fi testing to the ecosystem, learning that the industry's largest testing and validation solutions provider, U.S.-based Keysight Technologies, had agreed to buy one of the most innovative companies in the industry, U.K.-based Spirent Communications, was major news. What made the story sensational was the fact that the US$1.5 billion deal essentially overturned a US$1.3 billion offer accepted several weeks earlier from VIAVI Solutions. The purchase of Spirent carries major significance for the Wi-Fi industry because it is the largest provider of Wi-Fi performance testing in the United States, a position it secured following its purchase of octoScope in 1Q 2021. Spirent has also displayed significant innovation both technologically and commercially. Regarding the former, it is a leading provider of automated testing solutions, with its flagship OCTOBOX enabling vendors to emulate real-world environments and mimic client activity locally. As for the latter, in 2022, it was the first company to introduce a Wi-Fi performance Testing-as-a-Service product.

Yet, innovation in Wi-Fi testing was unable to prevent Spirent's heavy losses in 2023, as its major customers-notably U.S. telecommunication heavyweights Verizon, T-Mobile, and AT&T-cut back on telecoms equipment testing, the largest revenue source for the company. This led to a 22% drop in Spirent's 2023 Year-over-Year (YoY) revenue, and a 65% decrease in its operating profit. This poor recent performance, combined with an uncertain near-term outlook and a weak British pound, acted to drive down Spirent's valuation. Keysight, no doubt, calculated that Spirent's recent suffering presented it with a golden opportunity to acquire a highly innovative competitor at a considerably undervalued price.

Keysight's integration of Spirent will enhance its Wi-Fi testing competencies and, according to the firm, expand its serviceable market by US$1.5 billion. There will surely be many upsell opportunities for Keysight within its 30,000 strong customer base (for context, Spirent currently services approximately 1,100 customers). For the end user, on the other hand, while they will have access to enhanced end-to-end testing solutions for their needs, the significant product overlap between the two companies' portfolios will ultimately result in reduced customer choice. It is due to this concentration that Keysight will first need to get antitrust approval before they can proceed with the purchase. Another potential negative of the deal is that, as is often the case when a larger market dominant player absorbs its innovative rival, we are likely to see a slower rate of technological innovation going forward.

Despite the continual advancement in Wi-Fi testing, a range of challenges persist within the industry, including the following:

• High Requirements: In-house testing requires significant upfront investment and experienced testing engineers, whereas outsourcing to third parties entails high costs. Many firms lack sufficient resources for this.
• Evolving Demands: It is challenging for Wi-Fi testing solutions, which are often designed with set capacities and capabilities, to keep pace with the fast pace of Wi-Fi innovation and rapidly shifting consumer demands.
• Parter Coordination: Collaboration between different actors involved in product development has traditionally posed a challenge, as an issue identified at one stage requires a multi-party effort.
• Complex Ecosystems: Myriad different connected devices, numerous versions of Operating Systems (OSs), and multiple chipset vendors make validating each iteration of CPE software challenging.
• Delayed Time to Market: The time required for conducting tests extends the total development timeline. Moreover, vendors sometimes must wait for testing capacity with a third party, further delaying deployment.

Suppliers should consider the following steps to help the industry address the above challenges:

• Introduce Automation: Removing manual processes will improve testing efficiency and accuracy, lower costs, speed up time to market, and reduce labor expenses.
• Self-Certification: The ability to run tests independently means companies don't have to pay fees for the use of third-party testing facilities, enabling them to conduct tests on demand, whenever they have the need.
• Tighten Collaboration: Tools should be designed to assist the various players involved in product development to coordinate troubleshooting during testing.
• Testing-as-a-Service: Testing-as-a-Service lowers the barrier to entry for Wi-Fi testing by reducing upfront Capital Expenditure (CAPEX) requirements and lowers the need for in-house expertise.
• Market Foresight: With a greater understanding of future demands, suppliers can gain foresight about market trends and anticipate the expectations of end users. This allows greater alignment between testing equipment and market demands.

Whereas Keysight looked to its purchase of Spirent to augment its capabilities, others are investing in organic innovation to address the above challenges. One recent example is the Airties Orbit platform, announced in 1Q 2024. This involves the installation of an end-to-end on-premises testing facility at all the players involved in product development (the ISP, CPE vendor, SoC designer, etc.), with the CPE continuously and automatically re-validated following each incremental update. All parties involved will thus be synchronized. This contrasts with previous approaches that required manual retesting of equipment following every update, and complex multi-party initiatives for troubleshooting. Airties promotes that this platform will help reduce costs by enabling the independent, self-certification of equipment and the removal of unnecessary manual processes. It also believes that independent test automation will help accelerate time to market. Airties Orbit holds great potential, but the solution is not yet tested, as it was just launched, and Airties' modest market share within the broader testing market means that its penetration will face limits.