Genband Buys Israel’s Fring Internet-based Mobile Service

Texas-based developer makes its first Israeli acquisition in $30 to $40 million deal.

Genband, an American developer of multimedia and cloud communications software, has acquired Israeli firm Fring’s Internet-based mobile communications service in a deal reportedly worth tens of millions of dollars.

The acquisition of Fring’s communications service, designed to work on all major smartphones, expands Genband’s cloud portfolio for the consumer market, the U.S. company said on Thursday.

Fring’s service includes capabilities for mobile group video chat, two-way video chat, voice-only calls and text chat.

“Fring is one of the pioneers that helped change the way consumers communicate on-the-go and is perfectly aligned with our strategy to bring service providers rich, simple-to-use, mobile communications solutions,” said David Walsh, Genband president, CEO and chairman.

The service reduces roaming costs for subscribers by moving voice and video sessions away from radio access networks and routing them over the Internet.

“The reality for service providers moving forward is that their relevance is highly dependent on the quality of experience and choices they can deliver to their subscribers,” said Brian Partridge, vice president of Yankee Group Research. “Service providers around the world, and particularly in Europe where roaming charges are extremely high, must evolve their communications services rapidly to ensure that they stay relevant and competitive,” he said.

Details from the acquisition were not disclosed, but Israeli sources put it at between $30 million and $40 million. A market source who asked not to be named told Reuters the price was $50 million.

Fring's main competitor, Skype, was acquired by Microsoft for $8.5 million in 2011.

In December 2012, Fring unveiled a service that enabled users to receive VoIP (Voice over IP) calls from abroad, including from callers who didn’t connect using the app, but rather dialled dial a user’s number. That service was part of the impetus for the acquisition.

An alternative to Skype

Fring is Genband's first acquisition in Israel, but Jerusalem Venture Partners has invested in the Texas-based company in the past. Genband, which employs some 1,600 staffers, counts 600 communications providers among its clients, including Comcast, AT&T and British Telecom.

Fring, meanwhile, has over the years raised $35 million in capital from the likes of Pitango Venture Capital, North Bridge Venture Partners, Veritas Venture Partners, VenFin and angel investor Yossi Vardi.

The seven-year-old Israeli company was a pioneer in the VoIP field, which has reduced communication costs for users making calls over the Internet. Fring created software to provide Internet calling capability from cell phones, while its competitor Skype originally focused on software for computers alone.

“Telecommunications providers understand that they cannot fight Voice over IP services,” said B.G. Kumar, president of Genband’s multimedia business unit, in an interview. “They understand that if they don’t do it, someone else will.”

In its early days, Fring's software enabled Internet-based calls on low-tech cell phones, even before the first iPhone was launched in 2007. Its software also allowed users to call Skype users, and the ability to communicate with them helped set Fring apart from its competitors. Yet in 2010, Skype decided to block calls between the two services. Following Skype’s decision, Fring even developed computer-based software meant to provide an alternative to Skype. But within several months of Skype’s decision, it was clear the Israeli firm had lost part of what differentiated it from the rest of the VoIP pack.

The widespread adoption of third-generation cellular networks with wider bandwidths and the increasing popularity of smartphones in recent years also brought about changes in the applications market. Before, apps had to be pre-installed by manufacturers or cellular-service providers, but the changing landscape and creation of app stores have allowed users to download applications like Fring, but at a lower cost. The burgeoning cellular market has also since attracted competitors with deep pockets like Microsoft, Apple, Google and Facebook.

Facing that increasingly competitive market, a year and a half ago Fring’s CEO Roy Timor-Rousso changed the company’s focus to serving business clients and cellular-service providers, in particular. “We we leaders in a specific channel, but the arena changed,” said Timor-Rousso. “In two years there could be 70 players. Even if our service transfers data 20 thousandths of a second faster, that won't make a difference.”

As part of the change in strategy, Timor-Rousso laid off most of the company’s employees and recruited new ones. Fring went from having 40 employees at the time of its reorganization to 30 by the time it was acquired by Genband. The company's employees will receive bonuses, but won’t get stock options as part of the deal.

Fring