Financial Watch : Intec Moves into Retail; BCGI Loses Business

In June, Intec Telecom Systems agreed to buy ADC Telecommunication’s Singl.eView retail billing division for $74.5 million in cash. The Singl.eView business—which ADC received when it acquired Saville Systems in 1999—gives Intec a significant step into the customer transaction billing space.

Prior to this, Intec’s strengths had been primarily in carrier access billing, interconnect and mediation, but the Singl.eView business will dramatically change the company’s core offerings. “Sometimes you decide a space is worth going for, so we’d been looking at retail for a while,” says Mike Frayne, chairman of Intec. Frayne says what appealed most to his company were the core capabilities of the Singl.eView product line. “The feedback we got on the business has been phenomenal; it’s massively flexible with a sound architecture,” he says.

According to industry analysts, the retail billing market is about the same size as all other sectors of the OSS industry put together, and the largest OSS contracts tend to come from the retail billing segment. A Frost & Sullivan report projects that the market for retail billing systems is worth about $6.5 billion, with a compound annual growth rate of 5.1 percent during the period from 2002 to 2008. This includes both software-related revenues and bill processing/service outsourcing.

This interest in the Singl.eView business set Intec apart from other possible suitors, according to Richard J. Sherman, first vice president, research, at Janney Montgomery Scott. “Others probably looked at it from a customer acquisition strategy, where they would take a little of the technology and the customers and strip the business bare,” he says. “Intec was looking for an expansion of its business.”

The Singl.eView business does have an impressive roster of more than 70 Tier 1 and Tier 2 customers in 17 countries, including Deutsche Telekom, Virgin Mobile (Australia and the U.K.) Hutchison 3G and Optus. And according to Frayne, about 20 percent of Singl.eView business that’s in the pipeline is from existing Intec customers.

But because Intec is interested in considerably more than the client list, Sherman says the company needs to be aware of the inherent complexities of this kind of deal.

“They are certainly addressing a big market opportunity that they’ve left unchecked, but there is the question of the complexity of a merger of this size for the company,” he says. He adds that Intec has been successful with acquisitions in the past—namely the purchase of Digiquant in 2003—but that the ADC deal is different.

In the case of the Singl.eView business, because Intec made the acquisition for much more than just ADC’s customer base, it will need to keep more employees on, making it more challenging to find areas to cut costs in the business, says Sherman.

“Overall, the strategy seems coherent,” Sherman says. “Management has a good track record for acquisition, but time will tell.”

Sherman adds that ADC has also been looking for a buyer for its Metrica service assurance business. So far, Micromuse has expressed an interest, and there may be other companies that take a closer look at those assets in the future.

BCGI Blues

In early June, Boston Communications Group, Inc. (BCGI) announced it was losing business from Verizon, its largest customer, which decided to take its prepaid billing and transactions in-house. Although the news should not affect BCGI’s second quarter numbers, because Verizon accounts for almost half of BCGI’s business, there is concern that sales figures will take a hit later this year.

If that weren’t bad enough, there is serious concern that Cingular Wireless, which makes up 22 percent of BCGI’s revenues, is shifting its business as well.

As bad as all this sounds, it should not mean the end of the world for BCGI, says Mike Latimore, senior equity analyst at Raymond James & Associates. He states in his report that BCGI’s future success rests with its new Mobile Guardian product, which allows businesses and families to manage wireless phone use. Latimore states that if BCGI can land business from several Tier 1 wireless carriers by year’s end, long-term projections for the company will improve. The report also states that given BCGI’s solid balance sheet-which includes $70 million in cash and no debt-the company has an opportunity to make an acquisition and thereby add growth and diversity to its business.

In light of the recent bad news, BCGI announced in mid-June that it was planning to buy up to 2 million shares, or 10 percent of its outstanding stock—most likely in an effort to save its share price from spiraling downward.