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Why TeleSign takeover could be game-changer for BICSWhy TeleSign takeover could be game-changer for BICS

The Belgian wholesale carrier hopes its $230 million takeover of a Californian software company will take it in a new direction.

Iain Morris

September 28, 2017

8 Min Read
Why TeleSign takeover could be game-changer for BICS

Softly spoken and unruffled, Daniel Kurgan, the CEO of BICS, does not seem like a man about to complete one of the most transformative deals in his company's history. But the pending $230 million takeover of a Californian software player called TeleSign could be far more game-changing for the Belgian telco than its price tag implies. (See Eurobites: BICS bags TeleSign for $230M.)

If that takeover goes as planned, it could turn what has essentially been a wholesale pipe provider for telcos into a much more "digital" entity, offering a variety of cloud-based goodies to Internet companies as well as traditional telco clients. It will, in other words, mean catering to new types of customers, providing new types of service and adapting to a completely different business model.

Adaptation is essential. As the international carrier division of Belgian telco incumbent Proximus (formerly Belgacom), BICS is known to mobile operators globally as one of the world's biggest players in the roaming ecosystem. (The BICS acronym stands for Belgacom International Carrier Services.) Like its chief rival Syniverse, it is a vital link between mobile operators in different countries when globetrotting phone users connect to an overseas network. But this business is shrinking unstoppably as wholesale rates are squeezed by competition, regulation and new technologies. In the recent April-to-June quarter, overall BICS revenues shrank 12.9%, to €312 million ($367 million), compared with the year-earlier period.

"How can we offset the irreversible decline with new services or streams for other types of clients?" asked Kurgan rhetorically at a press briefing in London this week.

Figure 1: Boosting BICS Daniel Kurgan, the CEO of BICS, hopes to offset a sales decline at his mainstream wholesale business through the launch of new digital offerings. Daniel Kurgan, the CEO of BICS, hopes to offset a sales decline at his mainstream wholesale business through the launch of new digital offerings.

Executing a strategic change of direction has not been straightforward. Much as Syniverse Technologies LLC is doing, BICS has been expanding into markets outside the telco sector and launching new value-added services -- including data analytics, business intelligence, fraud prevention and security offerings -- for existing and prospective customers. Revenues from these services are growing at a double-digit percentage rate, says Kurgan. Yet the increase has not been sufficient to compensate for the slowdown at the mainstream business. Sales and marketing channels to Internet companies have been missing. And BICS has lacked the experience to deal with all their demands. (See As Its Roaming Empire Declines, Syniverse Gets Enterprising .)

These shortcomings mean the acquisition of TeleSign Corp. carries major strategic significance. Founded in 2005, the Californian company has previously specialized in fraud prevention for Internet companies, providing services like two-factor authentication. Today, it supports nine of the top ten websites in the US and 20 of the top 25 globally. As a self-described CPaaS (for communications platform-as-a-service) company, it has the digital DNA that Kurgan craves.

The plan now is to give TeleSign full responsibility for the sales and marketing outreach to Internet companies. With so little overlap between BICS and TeleSign, this seems unlikely to involve too much awkwardness: Of TeleSign's 500 "digital" customers, only five are also customers of BICS, says Kurgan. And while TeleSign is much smaller than BICS in sales terms -- generating about $100 million in annual revenues, next to the €1.46 billion ($1.72 billion) that BICS made last year -- the contrast is less stark when it comes to staff numbers. Including about 250 people whom BICS employs indirectly through an outsourcing company in Ukraine, BICS currently has about 800 workers. TeleSign employs around 300.

While TeleSign will continue to operate as an independent unit within BICS, the takeover could entail some transfer of employees between the two organizations. But there are no plans for major headcount reductions. "This is about growth and development," says Kurgan. "We could have hired staff to develop some things, but now we won't have to because we've got TeleSign." The combination inevitably means that annual revenues per employee will initially drop from about $2.15 million to $1.65 million. But investors will be able to live with that if the deal pays off in other ways.

The degree of success in these digital endeavors will undoubtedly be the yardstick by which Kurgan is measured. BICS' shareholders, which include Proximus (with a 57.6% stake) as well as Swisscom AG (NYSE: SCM) (with 22.4%) and Africa's MTN Group Ltd. (20%), are at least sympathetic to his mainstream plight. "Part of the topline decline is beyond control because termination rates are going down and we are an intermediary," says Kurgan. "Shareholders are telcos and understand this."

Next page: Stopping the rot

Stopping the rot
His hope, though, is that a business model based on CPaaS and value-added services will stop the rot and ultimately bolster profit margins from their low wholesale level of about 10% (on the basis of earnings before interest, taxation, depreciation and amortization). "We want to grow overall margins with CPaaS and new segments and value-added services," he says.

Skeptics may doubt that a company whose annual revenues are just 6% of sales at BICS can really play a transformative role. Yet even before the TeleSign deal was announced, BICS had cited business from Internet companies as one of its two fastest-growing segments (the other being mobile virtual network operators). And revenues from value-added services are already rising by at least a tenth each year. (See BICS Looks to MVNOs, OTTs for Growth.)

Among the roughly 500 mobile operators that BICS counts as customers, there certainly appears to be a healthy appetite for such offerings. An analytics product that BICS calls SMART Webvision, giving customers more insight into roaming activities on their networks, already has about 100 customers, for example, and the number is growing by 40% to 50% annually. TeleSign's digital expertise should aid product development in some areas, although BICS will continue to be the sales and marketing channel to the telco market.

Stacy Stubblefield, one of the co-founders of TeleSign, also sees potential in using BICS and its assets to strengthen her own business. Just as Kurgan recognizes value in TeleSign's cloud expertise and roster of digital customers, so Stubblefield believes that BICS' signaling expertise, data reserves and telco relationships can enrich TeleSign's capabilities and lead to new service opportunities in future.

"We want to communicate with our users in other ways and we can accelerate our own voice and data roadmap through BICS' connections to mobile operators," says Stubblefield.

Figure 2: TeleSign of the Times Stacy Stubblefield, co-founder of TeleSign, reckons BICS' capabilities can enrich her own company's service portfolio. Stacy Stubblefield, co-founder of TeleSign, reckons BICS' capabilities can enrich her own company's service portfolio.

Jointly developed products are already in the pipeline, including a secure voice service that could arrive in the market in the fourth quarter, depending on the final closing date of the takeover deal. More broadly speaking, Kurgan has three immediate product-related priorities. The first will involve making BICS' worldwide routing table for traffic available to TeleSign, which believes it can use this resource to improve services. The second is to take advantage of TeleSign's voice API (application programming interface), which has previously allowed developers to embed voice-based messaging in web and mobile applications. "Clients on the digital side have strong interest in voice capabilities," says Kurgan.

The last of his short-term objectives is to help TeleSign provide better intelligence to customers through the data BICS stores on its network. "There are lots of conversations with mobile operators about monetizing their assets," he says. "We could source information from operators that we are in a commercial relationship with, and use the data for core projects."

For all the latest news from the wireless networking and services sector, check out our dedicated mobile content channel here on Light Reading.

As an old-fashioned telco, BICS faces a possible culture clash with a company that -- until several years ago -- would still have been regarded as a startup. Overcoming that may be its biggest challenge. But aside from some transfer of staff, any integration of operations will be minimal. And there will be no phasing out of existing brands in the foreseeable future.

For BICS, TeleSign is obviously not the only digital game in town. The telco's efforts in areas such as business intelligence and analytics have already helped to mitigate the decline in its main wholesale business. Nor does Kurgan rule out other acquisitions to aid the digital transformation. His actual interest in further takeovers could depend on just how successful the TeleSign transaction turns out be.

— Iain Morris, News Editor, Light Reading

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About the Author(s)

Iain Morris

International Editor, Light Reading

Iain Morris joined Light Reading as News Editor at the start of 2015 -- and we mean, right at the start. His friends and family were still singing Auld Lang Syne as Iain started sourcing New Year's Eve UK mobile network congestion statistics. Prior to boosting Light Reading's UK-based editorial team numbers (he is based in London, south of the river), Iain was a successful freelance writer and editor who had been covering the telecoms sector for the past 15 years. His work has appeared in publications including The Economist (classy!) and The Observer, besides a variety of trade and business journals. He was previously the lead telecoms analyst for the Economist Intelligence Unit, and before that worked as a features editor at Telecommunications magazine. Iain started out in telecoms as an editor at consulting and market-research company Analysys (now Analysys Mason).

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