Convergence, consolidation, amalgamation – these are the current watchwords of the telecoms industry, as buy-out and merger speculation (and reality) abounds, and the Tier One players jostle for power and position. But as these growing entities position themselves to tackle an equally expanding global market, their requirements for operations systems support are becoming commensurately greater and more complex, as they respond to the need to deliver continued customer loyalty, cost-effective operations and profitable revenue growth.
Central to the success of any business, of course, is its revenue, and, certainly, in the telecoms industry, proving the business case for revenue assurance and fraud prevention programmes should be an easy task, especially given that telco revenue leakage never falls much below 10 per cent. For the large Tier One providers, an OSS supplier with the stature and reputation within its own field that can match that of the telco – not to mention the products and services to help solve the problems – is becoming vital.
Subash Menon, head of the newly merged Subex Azure Limited, comments: “We recognised that to provide the large telcos with the revenue maximisation facilities they need, you really have to be a large powerhouse that can deliver the breadth and depth of service they require.”
To that end, Subex Systems, leaders in the supply of fraud management systems, and Azure Solutions, the number one revenue assurance systems provider, joined forces with the aim of helping telecoms operators establish Revenue Operations Centres (ROC) through an integrated suite of solutions. Subash Menon, Chairman, President and CEO of Subex Systems will have the same role within the new company, while John Cronin, president and CEO of Azure Solutions will oversee the integration of the combined entity, ensuring a smooth transition of services and products from both the customer and employee points of view.
Commenting on the merger, Menon notes: “Clearly, there is a great deal of consolidation underway among operators, and we believe that it is critical for OSS vendors to also consolidate in order to take advantage of the opportunities going forward. We believe that the large operators are now seriously looking at the revenue maximisation space, and will need a significant and reliable partner with whom they can tackle the issues. This is not about buying or licensing a point solution, it is about partnering for the very long term. We aim to fill that space.”
Subex is acquiring Azure for a little over $140 million in an all share deal. Subex is the smaller company in revenue terms – at around $25 million – compared to Azure whose revenues last fiscal were $31 million. In the merged entity, venture funding companies including Doughty Hanson, Intel Capital and New Venture Partners, which are investors in Azure Solutions, will hold a 34.5 per cent stake, while the current shareholders of Subex Systems will hold 65.5 per cent. These current shareholders of Subex Systems include Subash Menon and a variety of funds.
Issues to be addressed
There are certainly plenty of issues to be addressed in the revenue maximisation space. Operators across the globe have to deal with a whole range of threats to their revenues, including internal and external fraud, invoicing system errors, poor systems integration and processes, rating errors and credit management, to name a few. The downturn in the telecom industry's fortunes during the early part of the decade understandably generated a surge of interest in both revenue assurance and fraud prevention – the old adage of 'every penny counts' holding sway. But as we begin to move back into a more entrepreneurial business environment, it is vital that operators do not lose sight of the fact that wealth creation in telecoms continues to be determined by the ability to manage and extract business value from the highly complex services they offer.
Subex Azure's John Cronin comments: “More and more, the big operators are integrating the various elements of revenue maximisation. They now need to move into the next stage, which is the Revenue Operations Centre, offering a centralised, integrated operations infrastructure that monitors, controls, and ensures integrity of the revenue chain through continual automated tracking of performance indicators.
“This involves the provision of tools to ensure proactive revenue chain optimisation and expedited error correction,” he explains. “The ROC concept is similar to that of the Network Operations Centre which allows the telco CTO to monitor the technical health of the network 24/7. In the case of the ROC, of course, it would be the CFO, for instance, who could monitor revenue generation and leakage across the network 24/7.”
Subex and Azure bring a wealth of different experiences and expertise to their joint table that will facilitate the establishment of the ROC concept in the telco psyche. Subex, founded in 1992, is based in Bangalore, India, and has a global presence across North America, Europe and Asia. The company went public with an IPO in 1999, and its shares are listed in India on the Mumbai, Bangalore and National Stock Exchange, while its GDRs are listed on the Luxembourg Stock Exchange. Azure – spun out from British Telecom in April 2003 – is headquartered in London, has its R&D centre in Ipswich, UK, and has staff based in the USA, the Far East, Australia, South America and across Europe. The newly merged Subex Azure's global and Asia-Pacific headquarters will be in Bangalore, while the EMEA and American operations will be based in London, UK and Westminster, Colorado respectively. The new company counts some 23 of the world's 40 largest operators among its customers, with a customer base of around 150 installations in over 60 countries. Tier One customers include BT, Telenor, Vodafone, Orange, O2, Cable & Wireless, TeliaSonera, T-Mobile, Verizon, Bharti Televentures and AT&T.
The merger continues both companies' recent strategy of market consolidation. Acquisitions by Subex include the fraud management assets and technology of Mantas in March 2006, Lightbridge and Alcatel in October 2004 and Magardi in May 2001. Azure acquired US-based cost and revenue assurance company, Connexn Technologies, and UK-based telecoms software company Anite Calculus in November 2004, and it also acquired route optimisation company, Monnet in January 2004.
Against this background, Subex and Azure began discussions some 12 months ago. “There was obviously a 'get to know each other' period, during which time we were able to look at and discuss technical capabilities, product sets and the specific relationships we each had with our customers,” Cronin explains. “At the end of the day, we clearly felt that this is a perfect match, and must stress, of course, that all existing customer and partner agreements will be fully supported by the new company.”
Menon adds: “We both looked at other options during that one year period, but obviously came to the conclusion that this is the right marriage. Our customer overlap was minimal – almost nil – and our different product sets combined perfectly to address the needs of telcos around the world.”
The advantages of being able to more easily reach each others' markets also played a part in the decision to merge the two companies. Cronin comments: “Looking specifically at Asia, we felt that the only way we would be able to establish ourselves quickly and – most importantly – effectively, was by having local people, working within the local culture, to service customers. We felt that we couldn't continue to ship people from the UK and North America into Asia in order to service our customer base in those countries, and we recognised that going through organic growth in any region that presented as big an opportunity as does Asia, would simply take too long. Clearly through this merger, we now have an acceleration into Asia.”
For Subex, equally, there was the attraction of adding more Tier One companies to their client list, and the recognition that the merger would enhance their geographic presence and credibility, especially in Europe, but Menon is keen to stress that it is the complete package of the two companies – their product offering, their market experience, and their customer relationships, as well as their geographic spread – that provides the strengths to be leveraged in the marketplace.
“In order to create a successful and sustainable software product organisation in our space, I think there are three or four basic elements that must be in place,” he explains. “In no particular order of importance, I would say that one is the ability to create profits – the whole sustainability and execution part of being in business. Certainly I believe that Subex has proven itself in that area. We are an extremely profitable organisation. We have grown from the ground up in six years to reach some $25 million revenue last year, providing profits of around $8 million.
“Second,” he continues, “is having a great product offering, and clearly we believe that we're bringing a fantastic solution to the marketplace, via our ROC concept, including the well-proven elements of revenue assurance and fraud control, originally from the two separate companies.
“Third is stature – the company's image and credibility in the marketplace. Now while I certainly believe that Subex has built up excellent credibility in the telecoms market, Azure has an even better image and has built up an exceptionally strong brand.
“And fourth is the most important element of customers – who they are, and the nature of your relationship with them. Obviously, Azure has a brilliant relationship with such companies as BT, and between us we serve well over 150 customers worldwide.
“To my mind,” he concludes, “it is these four elements which basically make or break an organisation in the long run. Clearly, on each of these fronts, the combined company of Subex Azure is extremely well placed.”
As is generally the case when two well established companies combine their operations, the management of both Azure and Subex recognise that such a development is not merely a question of merging products and services, but must also take account of the different and specific company cultures that will have grown up. Subash Menon is keen to emphasise that while some issues of corporate culture may need to be addressed, he does not believe that the different national cultures of the two companies is in any way relevant to the current marketplace.
“I really don't think it's valid to look at a company in terms of national culture anymore. Both Subex and Azure are international organisations, with several national cultures working within each company.
“As to the corporate culture – that, between the two companies, is fairly similar in that we both have a pretty aggressive approach in going after new business, and are both particularly supportive of our customers.
“Certainly, I don't believe there are any significant differences between us, although there are bound to be some gaps – no two organisations are ever identical”
He goes on to note: “When looking at an integration of this nature, there are certain fundamental things that we need to hold sacred. First and foremost is the fact that any commitment made to customers by either of the separate companies will be met. That is absolutely vital.
“Second, we must recognise the impact on our own people. We are determined to ensure that any such impact will be minimal, and that we will conduct ourselves in as professional a manner as possible to ensure a smooth transition.
“These are two absolutely cardinal principles,” he stresses. “Once we have these set in stone, and are guided by them, the rest falls into place pretty simply.”
• Lynd Morley is editor of European Communications