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Amdocs Buys Into Content Delivery

Ray Le Maistre

Billing systems giant Amdocs Ltd. (NYSE: DOX) is buying content download system vendor Qpass Inc. for $275 million in cash, a move that further highlights the growing importance to the telecom services world of content delivery platforms. (See Amdocs to Buy Qpass.)

Qpass is a supplier of software that enables wireless operators such as Cingular Wireless , Sprint Corp. (NYSE: S), and T-Mobile International AG to sell and deliver digital content, such as ringtones and games, to their customers. It also provides a managed service for carriers and acts as a services strategy consultant for telecom operators and content owners such as Sony Corp. (NYSE: SNE), ESPN, and HBO.

Such systems have long been important to mobile carriers, but with fixed-line operators keen to find ways of increasing revenues from their broadband customers, digital content delivery capabilities are quickly becoming relevant to a wider customer base, with VOIP specialist Skype Ltd. a recent example. Skype is using Qpass to sell "original pictures, sounds, and ringtones" as part of its new Personalise Skype service. (See Skype Launches New Version.)

The move pitches Amdocs squarely up against VeriSign Inc. (Nasdaq: VRSN), which made two acquisitions in the content delivery sector during March. (See VeriSign Acquires M-Qube and VeriSign to Buy Kontiki.)

On a conference call today, Qpass's CEO and founder, Chase Franklin, said his company's technology has enabled 480 million transactions worth $1.2 billion in total. He noted that, while ringtones still dominate the download sector, they only account for about 50 percent of current transactions handled by Qpass's technology, with games accounting for about 19 percent, graphics (such as screen savers) about 15 percent, and videos to mobile phones already accounting for about 2 percent.

Amdocs believes there's plenty more to come. The billing and CRM giant believes there is massive growth in the digital download market and reckons the market can grow from being worth $15 billion in 2005 to as much as $70 billion in 2009 as fixed and cable operators find they need such systems.

That's why it's prepared to pay more than six times revenues for Qpass, which generated $42 million in sales in 2005. That's growing though, with Amdocs saying the current quarterly run rate is at $12 million to $15 million. While the companies didn't discuss Qpass's profitability, Merrill Lynch & Co. Inc. analyst Tal "Too Tal" Liani estimates that Qpass lost between $5 million and $7 million in 2005.

The acquisition is expected to be dilutive by $0.01 or $0.02 in the current fiscal year, which ends in September, and accretive thereafter, and is expected to close before the end of June 2006. It's unclear how many of Qpass's 300 staff will be retained.

The move pleased investors, with Amdocs's share price edging up 25 cents, (8.3%), to $3.25 in pre-market trading this morning.

The deal will have also pleased Qpass investors such as Oak Investment Partners , Venrock Associates , and SeaPoint Ventures , and others, which have pumped more than $38 million into the firm.

And if there's any truth behind a recent posting on John Cook's Venture Blog, the purchase price may have been hiked up by rival bids from other interested parties, including Verisign, Openwave Systems Inc. (Nasdaq: OPWV), and Lucent Technologies Inc. (NYSE: LU).

Amdocs declined to comment on whether it had been involved in a competitive bidding process, while Qpass spokespeople were unavailable.

— Ray Le Maistre, International News Editor, Light Reading

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User Rank: Light Beer
12/5/2012 | 3:56:54 AM
re: Amdocs Buys Into Content Delivery
If it's correct that Lucent was among the other companies interested in Qpass, maybe it should have bid higher. There are surely decent margins to be had here, and Amdocs is an aggressive company that's used to winning. One to watch.
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