The OSS sector has seen its fair share of acquisitions, but few could be characterized as true examples of consolidation. Regardless, the conventional wisdom has suggested for some time that consolidation is coming. Perhaps Telcordia's recent adoption by private equity parents will accelerate the pace. Discussions with leaders in the sector suggest that further acquisitions and aggregations are in the works, though there is debate over who will remain standing in the end. The most important question is not, however, whether consolidation will happen. What matters is whether consolidation will benefit service providers.
What Are OSS Leaders Planning?
For OSS consolidation to benefit carriers, it must result in solving some of OSS’ biggest challenges. Critical issues like the integration tax, lack of data integrity, data model disparity and vendor and product longevity are some of the biggest cost concerns for carriers. It seems logical that consolidation should help rationalize and aggregate the range of products in the market, moving the cost to integrate and normalize applications to the vendor rather than having such costs recur with every implementation. The aggregated vendor’s economy of scale is found in footing the bill for integration, and repeating the positive results as deliverable product for multiple carrier customers.
To this point, the majority of acquisitions and acquisition strategies have not been focused specifically on fixing the big issues. While problem solving is generally in the acquirer's plans, it's not the real driver. In discussions with CEOs, chief strategists and general managers of more than ten leading vendors, it was clear that most often acquisitions are being driven by the vendors' need to survive and expand. This suggests that the sector is in a period of aggregation which may produce a number of attractive targets that much larger players may ultimately consolidate.
Matt Desch, CEO, Telcordia Mr. Desch and Telcordia have stated consistently for some time that the company intends to pursue an acquisition strategy. Cynical observers believe Telcordia's acquisition by Warburg Pincus and Providence Equity Partners may send it down a very typical path for a leverage buyout. Mr. Desch stated clearly that Telcordia's new parentage will allow it to pursue its acquisition strategy more effectively than could SAIC. “Acquisitions were the important, fundamental part (of the ownership change). We indicated that we thought we could continue to lead in growth segments by acquiring certain companies that made sense. It was clear talking to Warburg and Providence that they had plans in this acquisition to support us,” said Desch. With strong capital partners in the background, Telcordia will have the ability to pursue its strategy aggressively and will continue what it began with its successful acquisition of Granite Systems. What remains to be seen is whether the end result of Telcordia's activity – and its Elementive strategy – will produce an integrated suite that's compelling to service providers for new generation technologies.
Curtis Holmes, President and CEO, MetaSolv Software
Mr. Holmes says that he and his company are proponents of consolidation because “there are too many niche players out there.” He also says that he intends for MetaSolv to be one of those that remain standing, and points to MetaSolv’s history of acquiring other OSS vendors as a sign that the company has staying power. He also admits, however, that MetaSolv’s acquisition strategy was driven by a need to survive and grow, and points to the fact that more than 50 percent of the company’s revenue is now derived from its acquired assets. Acquisitions allowed MetaSolv to expand its geographic footprint, customer base, product line and cash flow significantly. Several industry analysts suggest that MetaSolv’s next important step is to demonstrate the rationalization and integration of its product line, which speaks directly to overcoming the integration tax. MetaSolv has always pursued a strategy of integration within its various product suites, which are aimed at different market segments, and challenges its critics to look at its increasing number of customers with integrated solutions. Some analysts also believe MetaSolv will be one of the more attractive targets for larger acquirers in the market (see Acquirer or Acquired?)
Todd DeLaughter, Vice President and GM – Management Software, HP
HP is often at the center of any consolidation discussion. Mr.DeLaughter says that while HP is always on the look out for opportunities, there's nothing specific he can comment on today (see Pipeline Q&A with HP). Yet, HP's Adaptive Enterprise strategy is so closely aligned with TMF's NGOSS approach; it would seem to set the stage for pulling more applications into the TeMIP-OpenView family. In fact, the TeMIP platform itself is built around an integration framework, which is at least part of the reason for its longevity with large carriers. HP is a natural candidate for a potential consolidator not only because of its deep pockets and product framework, but also – and perhaps most importantly – because it is one of very few companies that is both a large scale systems integrator and a product developer. What makes OSS important to massive and diverse company like HP, says DeLaughter, is that is adds significant value to HP's hardware offerings and allows its account teams to engage clients in strategic operations discussions that hardware alone won't always access.
