Comverse Acquires NetCentrex - It's Insurance
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Busy day for IP stories! This deal was announced yesterday, and at first, I didn't quite see the fit. I've since talked to some people and given this more thought, and it's coming together for me now.
Looking at the big picture, and in the wake of the AT&T/BellSouth deal, Comverse's move seems to be akin to buying insurance. Each company brings benefit to the other, but longer term, the motivation seems to be about Comverse insuring future revenue streams from existing customers.
Comverse has lots of cash to go shopping, and what they lack, NetCentrex has in spades. That is, a proven, widely deployed nextgen suite of applications that generate revenues today. Comverse is not really a nextgen company, but what they do have is a huge customer base - over 500 service providers, tons of Tier 1s, and customers in over 120 countries. I can't think of any startup or nextgen vendor with that kind of footprint. Their offerings, like SMS and billing provide decent revenues, but NetCentrex's IP-based platform can be a much better cash spinner, especially in the triple play arena, which is their real forte. Thinking more broadly, Comverse needs an FMC and IMS platform to be ready when carriers start to deploy along these lines, and they have that in NetCentrex.
On the other side of the coin, of course, NetCentrex has been in play for a while. Their biggest problem was gaining mindshare and market share outside Europe, especially in the US. They've developed a very strong business in Europe, with major deployments in France (Wanadoo), Italy (FastWeb) and Germany (AOL Germany). No doubt, Comverse saw these as proof points that NetCentrex can scale to the level they needed, and it's really not surprising that it took an Israeli company to recognize these strengths. You could argue that a U.S.-based vendor would be too focused on their home market as a litmus test, and since NetCentrex hasn't gained much traction there, it's easy to see how they would be overlooked.
As AT&T's deal triggers the inevitable carrier consolidation, the domino effect is spreading to the vendors - such as Lucent/Alcatel. Being a major vendor with a dominant position in the messaging market, Comverse is simply following the script, bulking up to stay at the front of the pack, and I'm sure other acquisitions will follow.
What I also find interesting about this deal is that both companies are essentially applications plays. They're not about building core network infrastructure - they're about enabling revenue-generating services. Sure, NetCentrex has a softswitch, but that's not material to the deal. Applications are what carriers need to make IP pay off -it's all about the revenues - and not reducing costs. It's another sign that the IP sector is maturing and becoming more like any other business, rather than the bleeding edge disruptive threat it was a few years ago.
Finally, the Comverse deal begs the question - why didn't they buy Sylantro or BroadSoft instead? Both have bigger customer bases and both have proven platforms. I don't really know, but I suspect a couple of reasons.
One is that they're U.S. vendors, where most of their deployments have been relatively small. Perhaps Comverse didn't feel comfortable that their platforms could scale to the degree that NetCentrex has already demonstrated in Europe. U.S. carriers are less willing to go big-time with IP since their legacy networks still work so well, whereas carriers in Europe and Asia are further along the IP path, and willing to go further with it.
Second could be the triple play, which neither vendor can match NetCentrex on. Especially for IMS, Comverse may simply be thinking ahead here, and seeing that there is more money to be made from their customers from video and IPTV than from VoIP and IP Centrex. On that count, they're probably right.
Looking at the big picture, and in the wake of the AT&T/BellSouth deal, Comverse's move seems to be akin to buying insurance. Each company brings benefit to the other, but longer term, the motivation seems to be about Comverse insuring future revenue streams from existing customers.
Comverse has lots of cash to go shopping, and what they lack, NetCentrex has in spades. That is, a proven, widely deployed nextgen suite of applications that generate revenues today. Comverse is not really a nextgen company, but what they do have is a huge customer base - over 500 service providers, tons of Tier 1s, and customers in over 120 countries. I can't think of any startup or nextgen vendor with that kind of footprint. Their offerings, like SMS and billing provide decent revenues, but NetCentrex's IP-based platform can be a much better cash spinner, especially in the triple play arena, which is their real forte. Thinking more broadly, Comverse needs an FMC and IMS platform to be ready when carriers start to deploy along these lines, and they have that in NetCentrex.
On the other side of the coin, of course, NetCentrex has been in play for a while. Their biggest problem was gaining mindshare and market share outside Europe, especially in the US. They've developed a very strong business in Europe, with major deployments in France (Wanadoo), Italy (FastWeb) and Germany (AOL Germany). No doubt, Comverse saw these as proof points that NetCentrex can scale to the level they needed, and it's really not surprising that it took an Israeli company to recognize these strengths. You could argue that a U.S.-based vendor would be too focused on their home market as a litmus test, and since NetCentrex hasn't gained much traction there, it's easy to see how they would be overlooked.
As AT&T's deal triggers the inevitable carrier consolidation, the domino effect is spreading to the vendors - such as Lucent/Alcatel. Being a major vendor with a dominant position in the messaging market, Comverse is simply following the script, bulking up to stay at the front of the pack, and I'm sure other acquisitions will follow.
What I also find interesting about this deal is that both companies are essentially applications plays. They're not about building core network infrastructure - they're about enabling revenue-generating services. Sure, NetCentrex has a softswitch, but that's not material to the deal. Applications are what carriers need to make IP pay off -it's all about the revenues - and not reducing costs. It's another sign that the IP sector is maturing and becoming more like any other business, rather than the bleeding edge disruptive threat it was a few years ago.
Finally, the Comverse deal begs the question - why didn't they buy Sylantro or BroadSoft instead? Both have bigger customer bases and both have proven platforms. I don't really know, but I suspect a couple of reasons.
One is that they're U.S. vendors, where most of their deployments have been relatively small. Perhaps Comverse didn't feel comfortable that their platforms could scale to the degree that NetCentrex has already demonstrated in Europe. U.S. carriers are less willing to go big-time with IP since their legacy networks still work so well, whereas carriers in Europe and Asia are further along the IP path, and willing to go further with it.
Second could be the triple play, which neither vendor can match NetCentrex on. Especially for IMS, Comverse may simply be thinking ahead here, and seeing that there is more money to be made from their customers from video and IPTV than from VoIP and IP Centrex. On that count, they're probably right.
