The rumours were right: Cisco has signed a deal to buy WiMax radio vendor Navini Networks for $330 million.

The basic story is simple: the move gives Cisco an established fixed and mobile WiMax product line, and 70 existing Navini customers. Cisco plans to incorporate these products, for both fixed and mobile WiMax, into a package with its Wi-Fi outdoor nodes and mesh gear, for broadband wireless access to telecoms.

The price tag is $110 million less than Cisco paid in 2005 to buy Wi-Fi switch pioneer Airespace, whose products are now the mainstay for Cisco’s Wi-Fi offering for both indoor and outdoor wireless LANs, and for the company’s continued dominance of the enterprise WLAN market.

Cisco clearly hopes for a similar result by acquiring Richardson, Texas-based Navini. The company was founded by Silicon Valley entrepreneur Wu-Fu Chen and radio frequency expert Guanghan Xu. The company has reaped some $160 million in venture backing as it developed and brought to market its RipWave MX line of mobile WiMax base stations, customer premises equipment, and adapters. A particular feature is the company's patented beamforming technology that can shape and direct WiMax radio waves, boosting range and performance.

WiMax is a cost-effective access technology to IP backbones, according to Larry Lang, vice president and general manager of Cisco’s mobility wireless business unit. Lang says the idea for the purchase grew out of Cisco CEO John Chambers’ meetings with carrier and network provider customers, especially in developing countries. “They want to invest in advanced telecommunications,” says Lang. “But putting in next generation infrastructure is one thing. It’s another thing to connect to them [from client devices]. In many of these emerging markets, it’s impractical to run copper. The answer is radio waves.”

Among the flock of well-funded WiMax startups, Navini offered several attractions, according to Lang. First, the vendor had a full WiMax product line available. “They have everything they need to build commercial WiMax nets,” he says.

Secondly, it was deep intellectual property portfolio around its “smart beamforming” and MIMO technologies: 13 patents awarded, another 49 pending, according to Lang. Another reason was that Navini already had network deployments (initially of its “pre-WiMax” radio technology) in such diverse markets as Texas, Nigeria, Bulgaria, and Peru.

Lang wouldn’t predict that WiMax will be Cisco’s next billion dollar market. But he says the acquisition gives Cisco an entry into rapidly growing emerging economies. “WiMax is a catalyst for the ongoing growth for these emerging markets,” he says. “We’re seeing 35-45 percent growth rate in these markets.”

The buy is a milestone, following hot on the heels of the ITU's endorsement of WiMax as a 3G standard. Cisco benefits with a quick entrance into the market, with an already well-known equipment vendor and early proponent of mobile WiMax, “where the future of the standard lies,” says Daryl Schoolarm, senior analyst at In-Stat. And there’s no overlap in the two vendors’ product lines, he adds.

Navini's mobile WiMax focus is a good fit with what Cisco can offer customers. ranging from service providers to enterprises, says Phil Solis, WiMax analyst with ABI Research. "Mobile WiMax uses a flat IP-based network as transport, which keeps latency low across the entire network, not just the wireless part," he says. "With the WiMax attach rate in laptops expected to climb very rapidly in the next few years, the wide array of devices that could embed WiMax, and WiMax's high data rate and low latency, Cisco realizes that WiMaz will play a big part in the overall networking picture."

There’s uncertainty if not controversy over just how successful the WiMax market will be. A recent ABI Research study predicts that by 2012, there will be about 95 million WiMax home or office subscribers and 200 million mobile devices equipped with the technology. But where the Wi-Fi market was historically a space for small vendors, the WiMax market today includes giants like Motorola and Nokia. In the United States, the WiMax network charge is being led in the multi-billion Xohm gamble by Sprint and Clearwire.

In-Stat’s Schoolar is unconvinced by one part of Cisco announced strategy, the presumed complementary fit of WiMax with Wi-Fi mesh. “I think this is a bad sign for Wi-Fi mesh,” Schoolar says. “Cisco has been a significant player in that market as well, and I see WiMax as a whole negatively impacting the growth of mesh.”

The acquisition, in cash and assumed options, is expected to be completed by the end of 2007.