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IDC Releases OSS and Billing Market Forecast
According to IDC’s “Worldwide OSS and Billing 2006-2011 Forecast,” the market for OSS and billing solutions will reach more than $9 billion by 2011. This figure represents a period of steady growth for the industry.
“Investment in next-generation network architectures will drive investment in next-generation OSS and BSS—including billing,” says Shira Levine, IDC’s senior research analyst for OSS and billing. Some operators are recognizing the significant role that these systems will play in the long-term success of their network initiatives.
“The most progressive ones—such as BT, Telstra—‘get it’ when it comes to the importance of OSS/BSS in the success of their overall transformation efforts, … but that’s just a handful of carriers right now” she says “Many others are focused on their network initiatives, and OSS is taking the back burner.”
Other key trends noted in the report include vendor consolidation and outsourcing. “Consolidation among OSS and billing vendors will continue, driven by operators’ preference for larger, more established suppliers,” says Levine. Operators will continue to move away from point solutions and demand more platform-based OSS and billing solutions from their suppliers.
In addition, operators will be amenable to outsourcing a portion of their OSS/BSS functions but will continue to keep core OSS functions in-house—particularly ones that interface with the network. Billing and revenue management are prime functions to be outsourced. Operators in developing markets are more likely to outsource.
Investment in off-the-shelf OSS and billing solutions will continue to grow, but U.S. investment will continue to lag behind their counterparts in Europe and developing regions . U.S. operators also lag in their acceptance of a standards-based OSS and billing model, according to the report.
Subex Azure to Acquire Syndesis
Subex Azure announced its intention to acquire Syndesis in an all-cash deal that values Syndesis at $164.5 million based on TTM revenue of $45 million—a multiple of 3.65 times 2006 revenue. The deal is expected to close in late March 2007.
Once the acquisition is complete, the expanded company will have 1,200 employees globally and plans to reorganize itself into three distinct business units: revenue maximization, which is the existing product set of Subex Azure; fulfillment and assurance, the existing product set of Syndesis; and finally BT business. This third unit combines the BT revenues of the first two business units, since both Syndesis and Subex Azure have significant implementations within BT.
The combined company will now offer six products on the Subex side, and five from Syndesis. With the acquisition, 32 of the top 50 telcos worldwide are Subex Azure customers, and six of those are common to both Syndesis and Subex. The business units will operate as independent revenue centers, but will leverage company resources across all lines of business.
Why Syndesis?
Subex hasn’t been shy about its plans to acquire OSS/BSS companies. Its last acquisition, in May 2006, targeted revenue assurance company Azure—hence the new name, Subex Azure. According to CEO Subash Menon, the company will continue to grow through future acquisitions. The strategy behind the acquisitions is to expand its footprint. “We are providing solutions to improve a service provider’s profitability,” Menon says. “On the one hand, we can improve margins with the Subex portfolio set, and on the other hand increase revenues with the Syndesis assets.”
To some, this acquisition may have come as a surprise, as it was not exactly in line with past acquisitions—which had a heavy focus on revenue assurance and fraud, and an obvious synergy from a functional perspective. However, from the perspective that Syndesis is focused on improving margins, Mark Nicholson, CTO for Syndesis, sees significant similarity and product commonality.
“There is a lot of synergy between the discovery and network reconciliation and revenue assurance-type products,” he says. “In addition; the fraud-type things need to tie back in automatic activation, as well. I think the distinct lines of engineering, fulfillment, service assurance, revenue assurance, and billing and so forth are starting to blur. Service providers are starting to focus on customer and service instead of those distinct operational functions.”
“Given the new services hitting the market, the cycle time from purchasing to provisioning to activation to service assurance and then back to revenue assurance is going to be extremely tight,” says Mark Fowlie, CMO for Syndesis. “For us to have this type of awareness into the service, including apps, gives us a competitive position that will be very difficult for the larger players to overcome.”
Pete Sokoloff, of Sokoloff and Company, which conducted the acquisition, says that Subex was attracted to Syndesis based on its software. “Syndesis’ commercial off-the-shelf product approach to solving highly complex OSS issues, to being rapidly installed, was highly attractive.” The other keys factors included its tier 1 customer base and that “it didn’t have the weight of a heavy legacy installed based that would distract from overall growth,” says Sokoloff.
Other heavy hitters were also interested in Syndesis. “There were many, in fact,” says Sokoloff. Syndesis did like the fact that Subex has a good track record in its ability to acquire a company successfully. However, he says, “at the end of the day, it did come down to price.”
Because Subex Azure has decided to market and sell its products in distinct business units, that may impact its goals to cross-sell. “It’s a mixed bag, to take complex products and cross-sell. It is unrealistic to expect salespeople of one product line to quickly become expert in another. The best they can do is open the door to existing customer relationships,” says Sokoloff. “Subex’s strategy is that you are better off selling from your strength. Having the experts who know how to sell the various products is better.” Traditionally, when companies acquire other companies and their products, they may combine the company successfully. “But when it comes to cross-selling, its an entirely different game,” says Sokoloff. “Salespeople don’t necessary adapt well to selling other product lines.”
Subex Azure on the Map
In the past, Subex Azure was just a small player out of India. “In April 2003, the publicly traded company was only trading at the equivalent of $2 US—small revenues, small market cap. Now they are trading at the equivalent of $16. That represents an 8-times increase in price share. Now they have a market cap of somewhere between $500 and $600 million US. The PE has ranged from below 20 to not much higher than 30,” says Sokoloff.
On a side note, Subex is an anomaly in India. It is one of the few software product companies amidst a sea of service businesses. Its strategy is to take the existing technology expertise in India and apply it to the product world.
Reactions
“If SAP, for example, would have come in and purchased one of these OSS companies, I think that would have raised more eyebrows than Subex taking on Syndesis. It is more of a complementary acquisition than somebody like Oracle coming into the marketplace with Portal or MetaSolv,” says Scott Donohue, an analyst with TripleTree, an investment bank based in Minneapolis.
“There are a lot of theories about Oracle-MetaSolv, Amdocs-Cramer and IBM-Vallent,” says Sokoloff, such as future integrated development and cross-marketing to complementary customer bases. “The bottom line is that consolidation is a good thing for the industry. … It is a good thing for service providers. It offers them a stable environment, and they don’t have to worry about whether or not their vendor is going to survive until the next product upgrade.”
The downside to consolidation is that there could be too few OSS players left—but that’s not a concern shared by Sokoloff. “I think not. There are still quite a few choices,” he says. “The heart and soul of the OSS space is the newer innovative products and players that emerge as well. I only see a greater need for new products in the future. No one is going to settle down and say, ‘OK, we’ve got everything we need.’”
“The price [Subex] paid is in range with what other assets have been going for in the industry,” says Donohue. “We see average sales prices between 2 and 4 times current revenues.” In terms of what Subex will acquire next, “they need to decide where they can add the best near-term value for their customers,” he says. Most industry experts think it will occur in the OSS space, as opposed to billing.
But whatever the combinations, more can be expected, Donohue says. “There are a lot of OSS players looking around the changing landscape right now,” he say, “trying to figure out what the best moves are, figuring out who is going to be relevant and who is going to be behind the curb.”
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