Financial Watch : Billing and OSS Industry Review

The billing and OSS industry is on the upswing. This from several analysts who sat down at the Billing & OSS World 2004 conference and exhibition in Washington, D.C., in May to discuss trends in the telecommunications industry.

“The industry has gone from booming, pioneer growth, and now we see a stable core doing well and proven good products in the market,” said Pete Sokoloff, managing director of Peter A. Sokoloff & Co.

Sokoloff added that while business is generally good these days, sales cycles need to be directed at the c-level when vendors approach a potential carrier customer. “Software buying decisions are made at the board level, and OSS is at the CFO level,” he said.

Looking at specific functionality areas, the panelists pointed to service assurance as an area to watch, although it’s not doing so well across the board. “Service assurance is a mixed bag; in wireline it’s very weak, but it’s improving in mobile and in the European market,” said Larry Goldman, co-founder and a partner at OSS Observer. Sokoloff agreed that service assurance is doing well in some areas, but he also mentioned revenue assurance, network optimization and cost management products as OSS segments that provide real ROI for carriers.

According to Mike Latimore, senior equity analyst at Raymond James & Associates, there are a few niches that are experiencing growth, including wireless revenue assurance and inventory management.

Most of the panelists agreed that inventory is a hot issue. “There’s been a growing interest for some time in service providers shifting from many sources of information to enterprise-wide systems to consolidate and allow faster and better decisions to be made,” Goldman said. “We’re just seeing this starting, and it has many years to go.”

The opinion that inventory is a space to follow was certainly validated in early May when Telcordia Technologies announced it was acquiring Granite Systems for an undisclosed amount. “This is different because Telcordia is a legacy provider to large RBOCs that is going through a difficult evolution,” Sokoloff said. “By adding Granite, Telcordia can provide next-generation capabilities to replace inventory systems that Scotch tape and staples are not holding together.”

This acquisition is only the latest in an ongoing consolidation of the billing and OSS space. According to Latimore, about 40 mergers have taken place in the past two years, the majority of which were for companies in the $5 million to $10 million range in terms of size. He added that as the industry picks up, company valuations go up, and the size of the deals go up as well.

Goldman added that until the industry sees carrier consolidation, telecom is not likely to see a tremendous amount of further vendor consolidation. Sokoloff said that contrary to popular believe, the days of the CLEC are hardly over. He added that currently about 14 percent of U.S. lines are from CLECs. “Providers are orienting to giving customers what they want; the companies that touch on making the customer experience better have a goldmine in front of them.”

Sokoloff pointed out that generally merger and acquisition activity on the part of billing and OSS vendors is driven by the desire to generate large customer bases, and that the technology takes a distant back seat. “There was a time when technology was the primary driver; but now it’s customer driven,” he said.

Richard Sherman, director of research for Janney Montgomery Scott, stated that the vendor community is actually in a Catch-22 situation. “How many great companies with a Tier 1 base are there to buy?” he asked.

In terms of new services on which the industry has to get a handle, the panel members mostly mentioned new wireless offerings. “The most obvious is wireless data,” Goldman said. “The industry is searching for the killer app, but there isn’t any.” He says that many new services can take a year to bill for them, but carriers are looking for platforms that will allow them to introduce, bill and make money rapidly.

Sokoloff added that “carriers haven’t found a paradigm to make lots of money off new services.” However, in addition to being able to keep a finger on the collective consumer pulse in order to quickly roll out the hottest new services and bill for them, providers need to think beyond the quick buck, according to Sherman. “It’s about efficiency more than new services,” he said. He added that providers would do well to focus on profits and customer retention. “It’s a defensive strategy to focus on customer retention and reduce churn,” he said.

Overall, the analysts were positive on billing and OSS and the broader telecom market—welcome news after the uncertainty of the past few years.