Comverse Technology (Nasdaq: CMVT) is changing its business direction and becoming an important player in the billing market. For a long time Comverse's management dreamt of entering the billing market, to give the company a strong, long-term hold on its customers. The acquisition of GSS, which Comverse announced last week, allows it to fulfill the dream.
The GSS division provides post-paid systems, similar to those of Amdocs (NYSE: DOX). It has a decent market share that includes several telecommunications operators that are considered tier-1 in Europe, and it has been cooperating with Comverse since the beginning of 2005 in building converged billing systems.
Why billing, and why now? The messaging and value added services market on which Comverse has focused up to now is becoming more and more a market for start-ups. Although the telecommunications equipment giants are entering this market in force, this is only as an add-on to their main activity. A company of the size of Comverse presumably needs a main activity with large revenue potential that will enable it to achieve higher rates of growth than added value services can generate.
Before buying GSS, Comverse provided telecommunications operators, chiefly in East Asia, Eastern Europe, and Latin America, with a real-time billing system (pre-paid) that is considered one of the best on the market. But in the general billing market, Comverse is considered a fringe player. Despite the growing trend in the telecommunications market towards pre-paid services, the industry's bread and butter is still post-paid systems.
Moreover, until recently there was a clear distinction between pre-paid and post-paid systems. In the past year, there has been a noticeable trend in the billing market towards enabling users to choose which services they wish to receive pre-paid and which post-paid, on the same telephone line. To support this, the operator needs a converged billing system. These systems are therefore expected to be the main generators of growth in the billing market in the future.
Comverse has been providing converged billing systems for some time, but it has so far had to cooperate with providers of post-paid systems. In order to provide an independent converged billing system, it needed its own post-paid system.
Although the acquisition puts Comverse at center stage in the billing market, the new situation shouldn't cause any sleepless nights at billing giant Amdocs. Amdocs undisputedly dominates the billing market, and its systems have proved themselves more stable than those of its competitors. Its relationships with the managements of the tier-1 telecommunications operators are considered very stable and very strong.
It may be presumed that Comverse has no pretensions to taking the market by storm, becoming a billing giant, and displacing Amdocs. Nevertheless, there is no doubt that the acquisition gives it a strong foothold in the converged billing market, with a good market share.
Comverse's romance with real-time billing systems began quite by chance. Shortly after the company bought Exalink in 2000, one its salespeople returned from East Asia and said that a certain operator he worked with in that region had requested that Comverse should provide it with a real-time billing solution for data communications. Until that time, Comverse had provided old-generation pre-paid systems for charging in advance for ordinary telephone calls.
No one at Comverse took the matter terribly seriously, but they began to examine what might be done. For several years, Comverse's people toyed with the system, part of which was built using certain functions of Exalink's server, and part of which used Comverse's intelligent network system. They didn't think anything much would come out of this, but they kept on trying. The experiments yielded what is now considered the world's best real-time billing system, and the rest is history.
As far as Comverse's hopes of providing value added services to GSS's customers are concerned, it has to be said that Comverse has been trying for several years to enter the wireline market, but its revenue from this market is still fairly low. On the face of it, the acquisition opens the door to the wireline telecommunications operators among GSS's customers.
However, there is complete separation at the operators between the divisions that buy value added and messaging systems and those that buy the billing systems. It can't be expected therefore that this market share will substantially expand Comverse's market share in value added services.
Either way, entering the post-paid market puts Comverse into the market of the complicated professional services involved in project management. It will now have to become a projects company, and will therefore have to invest heavily in acquiring expertise, skill, and know-how of a new kind.
The advantage of these systems lies in the fact that, while added value services systems can be replaced fairly quickly, billing systems are embedded very deeply within customers' IT systems. Replacing a billing system involves very high cost for the operator, and a long implementation period for the new system. Operators therefore don't rush to replace them.
Published by Globes [online], Israel business news - www.globes.co.il - on October 11, 2005