Amdocs Ltd. (NYSE: DOX), which makes operations support systems (OSSs), including billing software for service providers, has announced a major contract win with SBC Communications Inc. (NYSE: SBC) (see SBC Outsources to Amdocs).

The news sounds great, but it also raises a couple of old questions about the coziness of some of Amdocs' customer relationships.

Let's start at the top: The new SBC deal calls for Amdocs to tackle IT operations and develop applications to overhaul SBC's directory services, including its white pages, yellow pages, and electronic directories in 13 states over the next seven years. Financial terms were undisclosed, but a public statement from Amdocs says it's worth "hundreds of millions of dollars," and a spokesman for Amdocs says it is one of the largest contracts Amdocs has ever signed.

Amdocs will take on approximately 400 workers from SBC to perform outsourcing services for the deal. An Amdocs spokesman says there's no link between Amdocs's potential acquisition of 400 SBC employees in this outsourcing agreement and Amdocs's layoff of 400 of its own employees last month (see Amdocs Lays Off 400).

The win highlights one of Amdocs's lesser-known areas of expertise. Known primarily for its customized customer relationship management (CRM), order management, and billing software solutions (see Can XML Change the Face of Billing?), Amdocs's directory software accounted for about 11 percent of 2002 sales, according to company financial filings.

The deal doesn't come as a big surprise. Amdocs had announced in a press release December 13 that it was in talks with SBC for the agreement; and some think the close relationship between carrier and vendor dilutes the announcement's impact.

"The market for software has been weak, so any news of this kind is positive... but it's not indicative of a turning point," says F. Drake Johnstone of Davenport & Co. LLC. He says the close ties between SBC and Amdocs preclude the deal from marking a trend. If more deals come along for Amdocs and its competitors later this year, representing a wider range of providers not linked in other ways to Amdocs, that could signal a shifting tide, he says.

The close ties between SBC and Amdocs are clearly documented. SBC is Amdocs's second-largest shareholder; in a recent SEC filing, Amdocs listed SBC as holding 20,303,426 shares, or 9.1 percent of the company's voting shares. James S. Kahan, a senior executive VP at SBC, sits on Amdocs's board of directors. For fiscal 2002, business from SBC accounted for 11 percent of Amdocs's $1.6 billion in sales. (Other significant customers in 2002 included Nextel Communications Inc. (Nasdaq: NXTL), with 12 percent of sales, and Vodafone Group plc (NYSE: VOD), with 10 percent.)

SBC's relation to Amdocs also raises questions related to an Amdocs project that has raised some sticky questions in its own right. In a December 27, 2002, filing with the SEC, Amdocs stated that it "licenses software and provides computer systems integration and related services to affiliates of SBC Communications, Inc., including Certen."

Certen, a joint venture between Amdocs and Bell Canada (NYSE/Toronto: BCE) founded in January 2001, was mentioned in a shareholder lawsuit filed in the U.S. in June 2002 (see Stock Sales Draw Lawsuit at Amdocs).

The lawsuit, "Simon vs. Amdocs Ltd.," mentions allegations that Certen in effect allows Amdocs to double deal by selling to an entity that isn't quite at arm's length from itself.

SBC sold its stake in Bell Canada early in December to the carrier's parent company, so the wording of this filing is confusing, even though the filing came after SBC's sale of its shares. An SBC spokesman says that if there is any affiliation between Certen and SBC, it would be only through SBC's stake in Amdocs, which owns 10 percent of Certen. Got all that?

In the past, Amdocs has stated that there's no merit to these allegations and that it will defend itself vigorously. A spokesman for Amdocs today said that "no news" is forthcoming on the lawsuit and that the company maintains its position.

— Mary Jander, Senior Editor, Light Reading