Itron acquisition of SmartSynch signals next era of competition in smart grid communications

By Jesse Berst

Itron's acquisition of SmartSynch yesterday changes the rules of engagement in the ongoing smart grid communications wars. (Click to Page 2 to read the announcement with the details of the transaction.)

Until yesterday, every major supplier favored a single communications technology. In Itron's case, it was OpenWay, its own flavor of RF mesh networking. (It had also partnered with Cisco on a Cisco-branded version of RF.) But with the purchase of SmartSynch -- the leading proponent of cellular-based communications -- Itron jumps ahead of the pack. It becomes the first vendor that can say to utility customers "you can have it your way." (Rival Silver Spring Networks is almost to that point, but doesn't have a full line of cellular comms modules for all major meter brands.)

When he called to tell me about the deal, Itron CEO LeRoy Nosbaum said he had questioned his top engineers about the validity of cellular... and they told him "cellular is for real now." Thanks to improvements in coverage, data transfer and cost, "cellular is an alternative that has to be considered by every utility." With this acquisition, Nosbaum removes cellular as a threat and turns it into an advantage.

The two companies had flirted before, but couldn't agree on price. I don't have any first-hand information about the negotiations, but I suspect they met in the middle this time. Itron was willing to pay a little more to leapfrog its competition. And SmartSynch was willing to take a little less because it was at an inflection point. The privately held, venture-backed company simply had to have more money to expand and keep up with the competition. With an IPO not possible, that left only another big round of venture capital or sale to a larger company.

Itron will keep SmartSynch largely intact as a product group reporting to Vice President Russ Vanos. It will continue to sell and support SmartSynch communications modules that work with other brands of meters.

Financial implications

For the first 18 months, the acquisition will basically be a wash to revenue. After that, I expect it to pay long-term dividends for several reasons:

·         SmartSynch's deal with Consumers Energy for 1.8 million cellular end points will start to kick in

·         Itron and SmartSynch were competing for several major contracts. Now they can approach those same prospects as partners

·         Itron will be able to expand SmartSynch's products into international markets

·         Itron's financial stability will reassure utilities considering a long-term commitment to SmartSynch

Strategic implications

Itron now stands alone as the only supplier that is not pushing a single flavor of communications. It can claim to tailor a solution to the utility's particular needs.

Critics may argue that the acquisition is proof that Itron's OpenWay RF communications is failing. I see it instead as recognition that there is no one-size-fits-all communications technology. The world is moving to hybrid, mix-and-match communications networks.

In the short term, cellular may simply be a "hole-filler" for those occasional spots where it is too costly to build out RF. In the long term, we may see other utilities select cellular for all of its meters as Consumers Energy did last fall. Nosbaum also predicts we'll see utilities choosing cellular for "standalone" distribution automation initiatives. They won't try to build an all-things-to-all-people, multi-service mega-network. Instead, they'll just slap up the devices they need, pop in a cellular module and call it a day.

When LeRoy Nosbaum came out of retirement to retake the helm at Itron last September, I predicted it would lead to a faster, feistier Itron. So far so good.

Jesse Berst is the founder and chief analyst of Smart Grid News.com. He consults to smart grid companies seeking market entry advice and M&A advisory. A frequent keynoter at industry events in the US and abroad, he also serves on the Advisory Council of Pacific Northwest National Laboratory's Energy & Environment directorate.