As mobile carriers look to Wi-Fi, Ruckus looks to cash in with IPO

The initial public offering of Ruckus Wireless on Friday highlights the growing importance of Wi-Fi in mobile networks as service providers try to meet the demands of smartphone and tablet users.

Ruckus, a maker of Wi-Fi network gear based in Sunnyvale, Calif., focuses on products for carrier-owned networks in public places as well as for enterprises. Though it is dwarfed by its main competitors, Ericsson and Cisco Systems, Ruckus is riding a wave of growth in Wi-Fi for the kinds of mobile services that used to be solely the province of cellular networks, industry analysts say.

Wi-Fi is one of many technologies for solving the so-called spectrum crunch that carriers say could degrade mobile service, according to Ruckus CEO Selina Lo.

“Operators are going to use all the tools they have,” Lo said in an interview Friday following the IPO. “Wi-Fi happens to be a very cost-effective tool. It’s the cheapest way to carry a bit … in a wireless network.”

Ruckus began operations in 2004 and has about 600 employees, giving it just a fraction of the overall size and experience of rivals Ericsson and Cisco. But in a filing on its planned IPO to the Securities and Exchange Commission, Ruckus said its revenue in the first nine months of this year was 93 percent higher than in 2011’s first nine months, reaching $152.5 million. The company said its profit also grew.

Listing on the New York Stock Exchange under the ticker symbol RKUS, the company offered 8.4 million shares at $15 per share, raising about $126 million. The stock dipped after the market opened and was down $0.70 at $14.30 in midday trading. Lo downplayed the company’s first-day performance. “It’s too bad that the stock market is currently not very strong,” she said.

“We’re not looking at a day or a week or even a year,” Lo said. “For us, this is part of the process of building a long-term strong company.” Going public will give Ruckus more credibility with service providers, she said.

The company’s new capital might also go into acquisitions. “If I see a technology that makes sense, certainly I will not be shy about going after it,” Lo said.

Cellular carriers rely mostly on their own licensed frequencies to carry their subscribers’ data traffic. But despite the growing efficiency of mobile technologies such as LTE, the service providers foresee such heavy use of mobile data in the coming years that they think their networks may run out of capacity to carry it all. Older 3G networks have already given subscribers maddeningly slow performance in some areas when bandwidth-hungry new devices such as the iPhone became suddenly popular.

Wi-Fi is available to any service provider that wants to supplement its own spectrum, because it’s built into almost all mobile devices and runs on frequencies no one owns. Wireless analyst Craig Mathias of Farpoint Research estimates there is about 800MHz of Wi-Fi spectrum available around the world, compared with 20MHz in a typical pair of cellular bands used by a carrier.

Mobile operators such as AT&T have made big investments in Wi-Fi and are likely to turn to it even more with the emergence of standards that let service providers shift their users from cellular to Wi-Fi networks invisibly, Mathias said.

“Wi-Fi is definitely a tool that carriers are looking at to deal with mobile data,” Ovum analyst Daryl Schoolar said. Ovum estimates carrier Wi-Fi shipments will grow 84 percent this year from 2011 and will increase by an average of 34 percent per year through 2017. Ericsson, the world’s biggest maker of traditional mobile network gear, earlier this year acquired Wi-Fi vendor BelAir Networks and said it would integrate Wi-Fi with new small cells that are designed to boost network capacity in densely populated areas. Cisco CEO John Chambers said on Tuesday that his company would do the same.

Ruckus has also competed against larger rivals with Wi-Fi gear for homes and businesses. The company has worked to set itself apart by developing new technologies Those include interference-avoiding antennas, real-time traffic prioritization tools, and software that allows its access points to organize themselves in a mesh and be managed easily. Ruckus also offers access points that can accommodate integrated small cells.

In its filing this month, Ruckus claimed 18,700 customers worldwide, with more than 7,100 added in the first nine months of this year. Those customers include U.S. cable operators Bright House Networks and Time Warner Cable, Japanese mobile operator KDDI, and The Cloud, a public-access Wi-Fi business run by British carrier BSkyB. About 65 percent of the company’s revenue comes from outside the U.S.

One risk factor for Ruckus is its reliance on large service-provider customers, which have substantial negotiating leverage against the company, and the loss of one big customer could adversely affect its business, the company warned in its SEC filing.

But while the traditional cellular base-station industry may be a steep challenge to enter, the emergence of carrier Wi-Fi is a new opportunity, Ovum’s Schoolar said.

“Ruckus has certainly made themselves a major player in this market,” he said.