On April 29, 2015, Amdocs announced its intention to acquire a substantial majority of Comverse’s business support systems (BSS) business unit for $272m. If the conditions are met, the deal will complete before the end of September 2015. The announcement is interesting on three fronts: the implications for Amdocs, those for Comverse, and developments for the wider telecoms software industry.
Consolidation will deliver scope and scale
Amdocs has a strong BSS suite that is core to its customer experience solutions: over 85% of its revenue comes from services and it is almost exclusively focused on the telecoms vertical. Based on 2014 financial results, Amdocs’ revenue, at $3.6bn, is six times larger than Comverse’s. Unlike its earlier acquisitions of Actix and Celcite, Amdocs’ move doesn’t extend its product portfolio, but the deal does deliver a longer and more diversified list of customers, including cable and satellite companies in China, Russia, and other countries in Asia-Pacific, Europe, and Latin America. Amdocs’ organic revenue growth slowed to around 2–3% in 2012 and 2013, but acquisitions in 2013 raised it to 6% between 2013 and 2014. Continued revenue growth and investment is of paramount importance in a market that is consolidating around large network equipment providers (NEPs).
Comverse’s effective operations have clearly been hampered by its size, and the company will be vastly different once the deal completes – this is the second major announcement made in April concerning its future strategy. On April 15, it announced an agreement for a strategic relationship with Tech Mahindra, although employees from some functions in Comverse’s Digital Services business unit are likely to become Tech Mahindra employees. Comverse claims that the deal with Amdocs will help its digital services innovation for IP-based communications, especially the rollout of 4G/VoLTE/LTE services, and it will continue to exist as a separate company helping a wider enterprise base to transform operations and enhance unified communications.
Other recent announcements in this market stretch right across the spectrum. At the start of April, Orga Systems applied for preliminary insolvency proceedings, which highlights the harsh environment. At the other end of the scale, Nokia has announced its intention to buy Alcatel-Lucent. In 2012, Nokia sold its BSS holdings to Redknee and focused on its mobile broadband and operations support systems (OSS) offers. The Alcatel-Lucent purchase will return BSS and fixed-line assets to the Nokia fold, and the combined entity, worth around €25bn, will have an end-to-end OSS/BSS portfolio.
So what does this mean for OSS/BSS vendors and Amdocs specifically? The current climate favors size – geographical scale and an end-to-end view across the product line. NEPs in particular are in a strong position to bundle their support solutions with their network contracts. Smaller vendors with specific offers are clearly struggling; there are opportunities with tier-2 and 3 operators and MVNOs, but smaller vendors lack the required local presence to leverage these.
Amdocs is a telecoms software specialist and competes favorably, like for like, with larger NEPs in the BSS and OSS space. Its acquisition of Comverse clearly delivers some of the scale necessary, but we hope to see more from it in the near future to sustain its place at the top of the OSS/BSS table.
Clare McCarthy, Practice Leader, Telecoms Operations and IT