An interview with Avinoam Naor, President and CEO, Amdocs Management Ltd.

Avinoam Naor joined Amdocs in 1982 and initially served as a Senior Vice President. He has been involved with software development for 27 years, working on projects for the development of infrastructure software for communications systems and developing and marketing directory assistance systems. Launched as a provider of end-to-end phone directory development software, Amdocs began producing billing and customer care applications in 1992. Touting the advantages of providing the industry with a "modular" approach, Amdocs employs 2,900 software professionals worldwide, with the majority performing implementation and support services.

Billing World: What challenges has Amdocs faced since its June 1998 IPO?
Avinoam Naor: Our corporate culture has had to become more communicative within the industry, but before, during and after the IPO, there have been no changes in the way we do business. It hasn’t affected our R&D efforts, the long-term relationships we have with our customers, and especially our overall solution approach to customer care and billing.

BW: What plans do you have for the money generated by your IPO?

Naor: Some of the funds were used to repay long-term debt. By going public, we are in a better position to accelerate development, and to bring new products and solutions to our customers faster. We’ll keep expanding our already significant investment in research and development. In the merger and acquisition area, we’re looking for companies that can either contribute to our product line and shorten time to market with our products, or to expand the kind of services we offer the market, or to acquire some new knowledge or technology. While I can’t reveal any specific plans, there are possibilities for acquiring appropriately sized software companies. Regarding services expansion, we are looking for ways to establish a service bureau and expand our outsourcing services.

BW: How does Lucent’s acquisition of Kenan Systems affect Amdocs?

Naor: Kenan was and is a competitor. I think that Lucent’s $1.5 billion investment in this market is a clear indication of the high potential for customer care, billing and ordering. In the short term, Kenan, with Lucent, will have both advantages and disadvantages. In some places, Lucent will help Kenan win bids; in other areas, Kenan will lose the chance to work with customers who don’t want to put all their eggs in one basket. As for the long term, our competitor will really be Lucent, not Kenan. Amdocs’ competitive edge will be in its commitment to developing customer care and billing solutions, as Lucent’s focus is on equipment.

BW: Does the heavy initial investment and a remaining 25 percent stockholding by Southwestern Bell (SBC) create competitive disadvantages for you in the North American CLEC marketplace?
Naor: SBC has always been an excellent customer of Amdocs, and we have developed some very major systems for them. These projects have helped us bring key products to the market early. Also, the fact that SBC has chosen us to provide these strategic systems has undoubtedly enhanced our reputation. However, SBC does not intervene, in any shape or form, in the running of our business. Our relationship with SBC is a standard customer-vendor relationship. I think the people in the industry know that SBC maintains an arms-length relationship with Amdocs. Our other customers consider it a non-issue. We have never had any trouble selling to SBC’s competitors. There have been cases where prospective customers have raised the concern, but in these cases SBC has always given a clear indication of their non-involvement in our business operations. Our customer list runs like a who’s who of SBC’s competitors, so it’s really not a problem. We do not expect any problem in the CLEC market, either.

BW: How many CLEC implementations do you have?
Naor: In Europe and elsewhere, we do work with some third-tier CLEC-like operators, although not in the United States, and it’s certainly not our mainstream business. Amdocs systems have a high level of functionality and high scalability for handling large volumes. Typically, our customers are market leaders, or else high-growth new players with the vision of market leaders. Niche players, like many of the new CLECs, tend to opt for lower-scale, simpler solutions. Nonetheless, we are watching this market very carefully, because there is a lot of growth potential here. Indeed, as the CLECs continue to expand, and as consolidation in this market gains momentum, we are starting to see a mindset shift, with growing interest in our systems’ level of sophistication. We are looking at how to deliver this level of functionality in a way that will best match the needs of the CLEC market. Given the typical profile of CLEC operations, a service bureau and outsourcing are two delivery options that we are looking at very closely.

BW: It is my understanding that Amdocs has created a Windows NT-based system for a large carrier’s implementations in smaller marketplaces. Would SBC be likely to use the “shrink-wrapped” system for future CLEC implementations?
Naor: We have developed an Express NT-based system, which we are using to complement our work with major carriers, where they need a customer care and billing system in a smaller marketplace. We are currently evaluating the match between Express and some segments of the U.S. CLEC market. Pending this evaluation, Express may help us serve some of the maturing CLECs, either as a solution installed by the CLEC, or possibly combined with the service bureau or outsourcing options that I mentioned. Regarding SBC’s entrance to this market, and their systems plans, I would rather not comment at this stage.

BW: Are there any live installations of your NT product Express?
Naor: We have two German implementations, neither of which has been announced officially.

BW: Amdocs sells its products modularly. Which of these are the most popular?
Naor: Amdocs sells in two modes-end-to-end integrated solutions or individual modules. Integrated solutions, usually in total replacement situations, based on the entire Ensemble suite, are sometimes easier to implement because of the existing “natural” integration between the Amdocs modules. Depending on customer needs, we will often sell individual modules-especially, for example, in the high-end market ,where the huge extent of legacy systems favors evolutionary, module-by-module enhancement instead of total replacement. Some of the more popular individual modules are in the usage processing area-the message acquisition and formatting module and the rating module, which have been sold, for example, to most of the RBOCs. Other modules that are in strong demand as standalones are the flexible bill formatter, fraud management, and one of our more recent releases, churn management.

BW: What is Amdocs doing in the area of Voice over IP?
Naor: We view Voice over IP in the broader context of the new wave of services based on packet-switch technology. This technology, whether based on an IP or ATM model, is generating new voice and data services. This is shaping up as a key growth area, even though the battle between VoIP and traditional telephony isn’t settled yet. Given the growth expected, we are vigorously positioning ourselves in this market. We are investing in product development to support VoIP and the new data services, and we are building partnerships with key players such as Cisco, Nortel, VocalTec and Xacct. We have also signed our first VoIP customer, Delta 3, and we have other customers where we are implementing support for advanced data services.

BW: What are your plans for order management and provisioning?
Naor: We’re investing heavily in order management, including service delivery. This will enable us to provide a far more advanced solution for wireline companies, especially for companies that are focused on corporate accounts and required to handle complex orders. We are currently implementing the system, but at this stage I can’t disclose the customer’s identity.

BW: Can you tell me about your www.self.service module?
Naor: This product currently supports electronic bill presentment via the Internet. It has already been implemented by two customers, including Deutsche Telekom, where it has been live since last year. We see a lot of potential in this product. It’s generating a lot of interest, and in fact we already have 10 customers signed up. We are investing significantly in R&D in this product. We have a payment fulfillment capability already available, and there are a few more surprises up our sleeve here.

BW: Amdocs got its start in end-to-end directory software and you’ve introduced an Internet directory product. How are those programs doing? And what part of Amdocs revenue do they generate?
Naor: In our first quarter for fiscal 1999, directory systems activity represents around 30 percent of our business. This percentage is decreasing fairly rapidly, since virtually all our growth is coming from customer care and billing. First quarter results in that area grew more than 90 percent, compared to the same quarter last year.

One of the key factors in our directory systems activities is the synergy with customer care and billing. This is felt across the board, from software engineering methodologies to marketing and customer development, and new product development. This is clear with our Internet applications, where we can share core technology knowledge across products.

The Internet is a key issue for the yellow pages industry. After years of exploring different directions, the yellow pages industry has finally decided to zero in on this opportunity. But it’s an area with intense competition and technological turnarounds, so we’re proceeding with caution. Nonetheless, we think we know how the directories industry should evolve into the Internet environment, and we have incorporated this vision into our product offering in this area. It’s based on the utilization of electronic catalogs, e-commerce transactions, and the integration of front and back office operations.

BW: What do you think keeps the head honchos at service providers awake at night?
Naor: In 10 words or less: deregulation, and because of that, competition. This is giving telco managers plenty to think about as they try to distinguish themselves in the market. Another key issue is ILEC regulatory compliance, as they try to enter the long distance and other local markets. The result is some very fundamental changes in the way telcos do business, like convergence. This includes wireless and wireline convergence, voice/data convergence, specialized handling of corporate accounts, the proliferation of new service packages, and severe time-to-market pressures. What’s also emerging is a distinction between the “NetCo” (the network company wholesaler) and the “ServCo” (the service provider retailer).