Why Ericsson Wants Telcordia

If there was any lingering doubt that Ericsson AB (Nasdaq: ERIC) was more than just a mobile infrastructure company, its US$1.15 billion acquisition of Telcordia Technologies Inc. should remove it. (See Ericsson to Buy Telcordia.)

The deal looks set to catapult Ericsson's software ambitions and make it one of the biggest providers of Service Provider Information Technology (SPIT) by expanding its OSS and BSS product portfolio. (See Ericsson's New CMO Has a Soft Side, Ericsson Newbie Eyes SPIT, TV Growth and The SPIT Manifesto.)

On a conference call for media and analysts on Tuesday, Ericsson CEO Hans Vestberg and CFO Jan Frykhammar, and Telcordia CEO Mark Greenquist explained the rationale for the deal.

In short, Ericsson's Vestberg is looking toward OSS and BSS for his business's growth.

Ericsson estimates a compound annual growth rate of 6 percent to 8 percent over the next three years for the OSS/BSS market, in which the vendor includes software, consulting and systems integration, but not managed services or outsourced operations.

Why Telcordia?
According to Ericsson's Vestberg, the two companies' product portfolios are entirely complementary. The vendors have different strengths across the OSS/BSS spectrum that includes billing and revenue management, service assurance, service fulfillment, and "plan, build, optimize" offerings.

For example, Telcordia is the top supplier of service fulfillment while Ericsson is the market leader in revenue management, the companies explained today. (See Telcordia Boasts Fulfillment Leadership.)

With Telcordia, Ericsson claims it would have a leading market position in service fulfillment, network optimization and service assurance as well as a strong position in charging and billing.

On the financial side of the deal, despite Telcordia's declining legacy business of maintenance contracts with U.S. RBOCs, it has managed to keep its revenues flat over the last three years. That's partly because the company's international business has been growing, according to Ericsson's Frykhammar. (See Telcordia: Still a $700M+ Player and What's Telcordia Worth?)

More muscle for North America
Telcordia's traditional customer base in the U.S., particularly the Tier 1 wireline operators, would beef up Ericsson's position in the North American market. About 70 percent of Telecordia revenues come from North America, although it has 200 customers in 55 countries.

"It's an obvious asset for the relationship with the wireline customers," said Vestberg.

The Telcordia acquisition also opens the opportunity for more managed services business in the US for Ericsson. "We have been building managed services capabilities in the US over the last couple of years," said Frykhammar. "This will further expand the possibilities in the US."

What's next?
So what will Ericsson do with Telcordia? The Telcordia business will reside within Ericsson's Multimedia business unit, which is home to the Swedish vendor's existing OSS and BSS products.

Ericsson will take on Telcordia's 2,600 employees, who are mainly in the U.S.

In addition, Ericsson has an international presence that will support the Telcordia portfolio. "We have a sales force out there that's ready to sell these solutions on a global basis," said Ericsson's Frykhammar.

When the deal is done later this year, Ericsson will have a bigger role to play on the SPIT scene.

— Michelle Donegan, European Editor, Light Reading Mobile