Ericsson states its acquisition of Telcordia signals the company’s “commitment to its future strategy to capitalize on the growth opportunities in the OSS/BSS communications industry”. Ericsson chief Hans Vestberg said the company “estimates the market in 2010 to be roughly $35 billion” (€24.4 billion), which includes OSS/BSS products, consulting, and systems integration, but excludes managed services. Ericsson predicts that the market will grow at a CAGR of 6% to 8% between 2011 and 2014.
Entering a market with strong growth prospects is a good strategy, and it is an area that Ericsson and Telcordia customers will be willing to invest in over the next few years. Amdocs’ recent announcement of its acquisition of Bridgewater Systems has similar drivers, and provides further evidence that suppliers are lining up their propositions in direct relation to their telco customer’s needs.
Many service providers have already combined their network and IT development into one factory to optimize efficiencies and improve their time to market. However, the fact that suppliers had not also adopted this approach would have been frustrating to many. While telco’s network transformation projects have been underway since 2003, transformation at the service and customer experience levels has proved move elusive and challenging. That is partly due to the fact that telco’s network suppliers have not been able to cover the service layer and above with the same degree of expertise.
Telcos need agile IT
Telcos have to be more software driven and work in an agile IT environment if they are to compete with over-the-top players and industry disruptors such as Google and Apple. While these capabilities lie with telco’s systems, platforms, and processes, it is a hugely complex area to address.
Network equipment providers (NEPs) address a portion of the software and IT service stack – most often charging and billing systems –, but that is not enough for two major reasons. First, most telcos are moving towards becoming ICT players rather than remaining as pure telecoms operators. Second, there is demand for new business models for mobile broadband, such as tiered pricing.
A deal where everyone is a winner
The acquisition of Telcordia will extend Ericsson’s portfolio and enable the company to better defend its position in the telco vertical against software and IT services players. By moving closer to offering a joint ICT approach, Ericsson will be able to prosper as it can help transform the customer experience and will have a stronger portfolio to address the service assurance, billing, and charging demands of mobile broadband growth.
In addition, Telcordia brings a stronger presence in North America, and a client base that includes AT&T, Qwest, and Verizon.
We expect that more consolidation will occur between OSS/BSS players and their NEP counterparts. The recent Amdocs–Bridgewater deal reinforces our view that while the OSS/BSS market has previously been overlooked in the telecoms space, it is poised to come to the forefront in the industry.