“As we went into the developed countries, we noticed a product gap in our offering, in terms of 3G and advanced 3G video technology. We went through a detailed process of thinking about developing in house, licensing or acquiring. We were lucky to that we came across Dilithium”, OnMobile CEO Arvind Rao said on a conference call held today following the acquisition of Dilithium Networks, which MediaNama had reported first yesterday. “We’re happy to have won it away from others. We have teams working on the integration and the go to market plan in particular, approaching our installed base of customers and extending our 2-2.5G services into 3G,”  he added. Details from the call:

What has been bought?

The technology, 175 patents, the customer installed base and customer contracts; the core engineering team will be on board. OnMobile is not buying the company.

Three sets of assets:
1. products that allow OnMobile to roll out services on a circuit switched network that has now been upgraded for 3G. Onmobile will be able to provide IVVR (interactive video portal), Video call completion, streaming services live or on demand.
2. Products that allow content providers who have video assets (content) to directly supply those on a 3G network, without doing transcoding. The transcoding is on the fly, allowing the content to be viewed on multiple handsets, without any preparation from the content provider.
3. Technology that allows telecom operators to optimise their network for video. Video tends to be bandwidth intensive, and spectrum is always at a premium. This is particularly relevant in India.

Competitive Advantage?

These are protected by a large set of patents (175), which will be valuable not just in India, but in markets all over the world. The technology is far more spectrum efficient than other technologies. The 3G spectrum issued by the Indian government to telecom operators in India relatively small, and the spectrum efficiency in terms of bandwidth and video quality becomes particularly important in India in comparison with other countries. Dilithium has an advantage in terms of session set up times (60% lower than other competing technologies). The end user gets higher video quality over the same spectrum. The number of minutes of network usage or number of users per MHz of spectrum in India is the highest in the world. That’s why we have call drops. The same is going to happen on 3G.

Is Real Networks Competition?

“The layer that we are in, Dilithium does not compete with Real Networks. They might have the surface layer. Competitors are Ericsson, Huawei, Nokia Siemens, and a couple of startup companies in Europe and North America, but nobody at the scale as the combination of Dilithium and OnMobile”…”There are competitors, but you have to compare the competition in terms of patent portfolio and R&D.”

For how much was Dilithium bought? Has any debt been taken on board?

OnMobile execs declined to comment on the amount, saying that the purchase price under non disclosure agreement. “Dilithium had raised almost $90 million in VC funding over last 8 years, a significant amount of which was used for R&D. We’re buying it at a significantly lower price than that. We wont need to go out for any debt or equity to fund it,” Rao said. Sanjay Uppal, President at OnMobile, added that they’re buying Dilithium’s assets for cash, and no debt has been taken on board.

What happens to Dilithium? Can it restructure and compete with OnMobile in the same space?

With the assets sold, it becomes a shell entity. Rao said on the call that Dilithium is shutting down, so they don’t expect any competition from them. “Dilithium will cease to be an operating entity, once all assets, intellectual property and the core team transfer to OnMobile. They won’t be competing.”

What did Dilithium do wrong? Can OnMobile face the same problems?

Sanjay Uppal’s guess was that over the course of 8 years, Dilithium expanded rapidly and were in all geographines. On a license revenue based model, the burn rate working in all geographies, exceeded the money coming in. “We will adopt our business model along with the tech that Dilithium brings on the table. Our timing in on the sweet spot in India and globally.”

Hiring And Integration

Key members of the core team – around 20-30 people – at Dilithium will be brought back. “We won’t hire everyone (100-150 people) back, but we will make sure that we get all of the core team in house, so the momentum is not lost, in terms of R&D and in terms of integration of our technology.”

Sanjay Uppal added that since OnMobile’s current platform has open interfaces, and so does Dilithium, the integration will be fairly straightforward.

Plans

– 3G Deals & timelines in India: Responding to MediaNama’s question, Rao said that 3G RFP’s (Requests for Proposals) for one or two telecom operators are out, but in any case, these are negotiated non-RFP deals that are being talked about. “We’re already in discussions with all operators. The integration as far as India is concerned is already well on track, and we’ll be able to meet any timeline that an operator has.”

Rao expects that, based on the “go-live date that operators are working on, all 3G deals with customers will be signed well before March 2011.”

– Moving customers to a revenue sharing model, or at least trying to: Dilithium’s technology is deployed with 60 customers worldwide, including BSNL in India, China Mobile and Vodafone. Dilithium’s model was to license the platform, book revenue up front, and then have an annual maintenance contract built in. Rao said that they will try and switch to their revenue share – managed services model, though many operators still insist on a licensing model, so it is hard to predict. Managed services has not been prevalent in the western markets, when it comes to 3G video.They have de-emphasised the applications that sit on the platforms. That is our model. We’re going to emphasise much more this model. Initially, we’re going to go with what the operator wants – all licensing, all managed services, a mix. We dont know where the ratio will be.

Rao thus cautioned that there are lots of unkowns when it comes to the licensing model. “What is the sequence in which video services will be rolled out by operators in India? What is the end user pricing model? We would like to stick with our existing revenue share model, but we might have to do mixed capacity licensing deals.”

In about five years of now, 3G should be 1/3rd or more of the size of the VAS market in India.

Expansion potential

We’ve got our product in 60-70 telecom operators (through Dilithium), but it has not scaled up. We will be licensing on incremental capacity, and we’ll have to convince an operator to switch to a managed services model.

Content business?

We want to be content neutral, and a large content aggregator and distributor. we don’t want to get into the business of creating content.

– We think that with 3G video, there will be a strong emphasis on UGC. And because of the tech that allows any to any transcoding, and we’ll roll out UGC services.
– Value proposition to content owners will be attractive because of the transcoding technology
– By 2013, 65% of traffic on the net will be from video that is played on the mobile

Related:
OnMobile Global To Acquire Dilithium Networks, A 3G Video Solutions Company
Deep Restructuring At Dilithium, As It Shuts India Ops