As Its Roaming Empire Declines, Syniverse Gets Enterprising
To most globetrotting mobile phone users, Syniverse is an unfamiliar name. Yet millions unwittingly rely on its technology.
When a Vodafone UK customer traveling to France ends up on the network of Numericable-SFR, Syniverse Technologies LLC handles the transfer, validates the user's identity and acts as a clearing-house for the transaction. About $18 billion in transaction-related fees sloshes through its systems every year. Fully owned by private equity player The Carlyle Group LLC since 2011, it is undeniably an essential part of the stitching that holds together the fabric of the mobile roaming ecosystem. (See Carlyle Offers $2.6B for Syniverse.)
But during the past few years, the Syniverse stitching has looked increasingly worn. In the recent April-to-June quarter, revenues from mobile transaction services (MTS), which account for about four fifths of the company's total, shrank 5%, to about $156 million, compared with the year-earlier quarter. And they have fallen from as much as $194 million in the same period of 2014.
The decline is forcing the Florida-based firm to look beyond its telco customers and at a range of new digital offerings.
The problem with the mainstream business is certainly not one of relevance, as Syniverse plays a key role for almost all of the world's mobile operators. While it is not alone in enabling roaming -- its main international rival is probably BICS, a subsidiary of Belgian telecom incumbent Proximus -- Syniverse claims to have a much bigger footprint than others, especially since its $292 million takeover of Hong Kong-based rival Aicent Inc. in 2014. Today, there are hardly any operators that do not use Syniverse in some capacity, says Mary Clark, the company's chief corporate relations officer and chief of staff, whose air miles account backs up the boast. (See EU Rules Will Trigger Worrying Data Tsunami, Says BICS.)
Instead, Syniverse has suffered as the roaming business has been squeezed between the twin forces of competition and regulation. "Five years ago it was dropping cash and fabulous margins all the time, but now roaming is more of a cost center" for the mobile operators, says Clark. "So our company has flipped from being on the revenue side to the cost side and we've had to figure out how to pivot." (See Syniverse: Expect a Summer of LTE Roaming.)
Syniverse has clearly not been helped by the European Union decision to scrap roaming charges, which came into effect in June this year. With pricing battles also eating into consumer revenues, the company has had to renegotiate contracts on less favorable terms. Yet Clark is optimistic that most of the pain is now behind Syniverse and that MTS revenues are showing signs of stabilizing.
In the meantime, though, the company's net loss has ballooned from about $6.4 million in the second quarter of 2015 to as much as $16.4 million in the same period this year. Without restructuring, which has recently delivered growth in operating income, the net loss would have been even worse. Staff numbers have been whittled down from more than 2,500 at the end of 2014, following takeover activity, to about 2,200 at the end of June. And a data center migration, along with the successful renegotiation of its data center contracts, has also led to a sharp reduction in costs.
While further restructuring is planned and underway, Clark does not expect headcount to fall much from its current level. The goal now is to power Syniverse back to profitability through sales growth. And with no real sales opportunity left in roaming, Syniverse is turning its attention to a much smaller but fast-growing business it calls enterprise and intelligence services (EIS).
Next page: Chapter and Syniverse
Chapter and Syniverse
That move reflects rising interest from some of the world's largest organizations in using real-time analytics and messaging-related products to improve performance, says Clark. Addressing diverse needs in the retail, financial services and travel and hospitality sectors has been a clear priority, and Syniverse today counts giants such as Macy's, Western Union and restaurant chain Chipotle among its EIS clients.
"Western Union was having difficulty getting customers to use a loyalty program and so they worked with us on text messaging and in-app push notifications," says Clark, citing an example of the work that EIS does. "We are also talking to them about mobile wallet services."
Takeover activity dating back to 2009 has given Syniverse many of the tools it needs in this market. Eight years ago it spent $175 million to acquire a messaging business then owned by VeriSign Inc. (Nasdaq: VRSN), a move that expanded its network of text-messaging connections and routes. Since then, says Clark, it has been "layering" on technologies that can support the big brands. The €550 million ($657 million, at today's exchange rate) takeover of a competitor called MACH in 2013 has also helped, bringing with it further capabilities in real-time analytics, besides transaction-processing systems. (See Syniverse Gets Personal, Syniverse to Buy MACH for $693M and Syniverse Snaps Up VeriSign's Messaging.)
Does Syniverse need to acquire other businesses to fortify its offering? Clark thinks such deals are unlikely but says partnerships with service providers could further enrich the company's portfolio. Smaller strategic investments also appear to have paid off. Last year, Syniverse spent $45 million on a minority stake in a Chicago-based software company called Vibes, whose "mobile engagement" platform has obvious strategic significance. "They bring the experience of sitting with marketing managers and creating campaigns to be deployed on their platform," says Clark. "That is a great contributing factor in driving our own expertise."
While the EIS business accounts for just a fifth of total revenues, its sales have been growing at a year-on-year rate of around 10%, according to Clark. In the second quarter, they were up as much as 15%, to about $38 million, compared with the year-earlier period. But this was not quite enough to offset the MTS decline, with overall sales falling 1.6%, to $194.5 million. If revenue growth is to return Syniverse to profitability, then sales will have to rise considerably, Clark acknowledges.
There is cause for optimism, though, given the immaturity of the market. "The mobile Internet is still not being leveraged as comprehensively as it could be," says Clark. To promote the benefits among enterprise customers, and ensure it can adequately address what it sees as a major growth opportunity, Syniverse has been overhauling its entire sales organization to give that more of an enterprise focus. "We're now bringing in very senior staff that have experience in these specific sectors and are helping us to raise the game," says Clark.
Syniverse's telco customers might also give it an important white-label channel to the enterprise market. "We haven't had much traction with operators and are doing better at selling directly [to enterprises], but we are talking to operators about it," says Clark. Other telcos, meanwhile, could become EIS customers in their own right, using Syniverse technologies to improve engagement with subscribers.
Next page: Blurred lines
Inevitably, this will lead to a blurring of the lines between MTS and EIS, and Syniverse could eventually dispense with those labels entirely. The shift to cloud-based services, allowing telcos and enterprises to pick and choose from a menu of products and applications, could hasten their demise. "That is the journey we are now on," says Clark.
Some kind of security service aimed at the Internet of Things (IoT) also appears to be in the works. Known for her forthright views on a variety of industry issues, Clark complains vociferously about the vulnerability of the public Internet. She worries that much-hyped edge and fog computing technologies will only make matters worse as they shift processing power much closer to billions of end-user devices. A potential solution is to make use of mobile network infrastructure that can be closed off to the Internet, she says, noting that mobile operators were largely unaffected by last year's DDoS (distributed denial of service) attacks. "You could have a private, isolated network that validates each participant touching the network," she explains. "That is powerful and will be needed to protect things that have significant value and are so critical."
While Syniverse is not giving much away at this stage, it has been in talks with mobile operators and enterprises about opportunities in this area and will have more to say in the first three months of 2018, promises Clark.
Yet broader success for Syniverse will hinge on several developments over the next couple of years. The first is whether Clark's optimism about the stabilization of the MTS business proves justified. Further declines will hinder progress toward profitability, and could force Syniverse to make cutbacks it currently deems unnecessary.
An alternative could be to increase investments in technologies aimed at boosting efficiency. The virtualization of its platform is expected to change the cost structure for the better, says Clark. Capital expenditure grew to $34.4 million over the first six months of the 2017, from $31.1 million a year earlier, because of investments in security and network infrastructure. But there are currently no plans for any sharp rise in spending.
Above all, though, Syniverse will need to maintain and even increase the momentum at its EIS business. With opportunities to sell more services to existing customers, and greatly expand its client base, the outlook is encouraging. And while Syniverse is hardly the only company targeting digital transformation in the enterprise sector, its assets and ubiquity mark it out. What has spent most of its existence as a behind-the-scenes facilitator could before long morph into something altogether different.
— Iain Morris, , News Editor, Light Reading