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RHK: Rest in Pieces

RHK Inc. is no more, but the two parts of its business are continuing on under new monikers.

RHK's research division is being bought by U.K. market research company Ovum Ltd. (see Ovum Acquires RHK Research). Ovum has only bought the research division of RHK, which amounts to a total of 17 staff, 12 of them analysts.

RHK's consultancy business lives on as the 10th Street Advisors, a "Global Telecom Advisory Boutique" according to its Website. And with the word "boutique" in the title, we won't expect anything big. [Ed. note: Will they be selling candles and floral scented soap?]

The good news is that Harry Hamster is on the treadmill there, along with nine others including, alas, John Ryan, the R of RHK.

Fash Darabi, managing director of Ovum Telecoms, declines to say how much Ovum paid, but analysts in this field speculate that it wasn't a lot, possibly somewhere between $1 million and $2 million.

"I don't want to say that RHK has been broken up, but by breaking it up, we're picking up something that is nice and clean and profitable," says Darabi.

The reference to cleanliness refers to the absence of "liabilities and overhead" that Ovum might have been lumbered with had it bought the whole company, Darabi says. The whole company was up for sale, but "we didn't discuss the purchase of the consulting arm."

RHK's research business "was subscale," Darabi adds. [Ed. note: Maybe he meant to say "boutique."] He says it didn't have the sales and marketing muscle to sell its research worldwide. Ovum has about 230 on staff, about 25 of whom have been recruited this year, and its revenues have increased 15 percent in the past year, according to Darabi.

Observers think the acquisition makes a lot of sense for Ovum, because it brings it expertise in new areas and strengthens its presence in North America. The combined company will be known as Ovum-RHK, which sounds like a prescription treatment for migraines.

RHK's history is one that reflects the ebb and flow of the telecom industry itself. The company was founded in 1991, and, by September 2001, it had swollen to more than 130 people -- a growth of 160 percent from its January 2000 headcount of about 50. Shortly thereafter, the company's market projections began to rise while its analyst and management numbers dwindled (see RHK's Fat OSS, RHK: No Numbers for You!, RHK Changes CEOs, and RHK's OSS Loss.

As a nod to RHK's role as one of the most entertaining prognosticators in the field, we'll predict that the two parts of RHK will each grow to become a $900 billion market -- a 4,550 percent increase -- by 2022.

— Peter Heywood, Founding Editor, Light Reading

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Kevin Mitchell 12/5/2012 | 3:08:53 AM
re: RHK: Rest in Pieces Unlikely
Cisco has 2 softswitches: BTS and PGW
The BTS is their CLEC/MSO C5 softswitch.
For telcos, Cisco is going to switch with packet and media processing: gateways and routers.
I don't think they want to play that game.
Plus they have the relationship with Ericsson and Italtel currently.
douggreen 12/5/2012 | 3:08:56 AM
re: RHK: Rest in Pieces particle_man,

The very fact that they depended so heavily on vendor input was a flaw in itself. You don't measure anticipated demand by what the vendors hope to sell. All vendors are going after the same business and all or believe they will capture it.

I was shocked when I was at Ciena when RHK asked us for our forecast. Being a public company we could not, and would not have anyway. We all got a laugh at Ciena when, in the early days of DWDM, RHK reported that the previous years entire market for DWDM was less than what Ciena had sold by themselves. This was probably the last time that the optical market was under-reported.

I always believed that RHK had some very smart people and I valued their advice. Their forcasting methodologies, however, would have recieved an "F" at any major university.

allidia 12/5/2012 | 3:08:57 AM
re: RHK: Rest in Pieces Back in October LR reported Cisco was likely to buy a softswitch provider within 12 months. Seeing there are 3.5 months left what's the latest on Italtel the likely partner?
particle_man 12/5/2012 | 3:08:58 AM
re: RHK: Rest in Pieces Housing bubbles, the election results, Iraq war commentary,.... you guys haven't started in on intelligent design or did I miss that in a post somewhere?

I just wanted to mention the RHK methodology, as I found their market models to be very nicely tied together and consistant. They were one of the few groups where you could actually tie component numbers all the way through system forecasts and CAPEX. I think Dana and Ron had put serious and critical thought into how they stitched together the info.

So why was it so wrong?

I would chalk this up to a mass hallucination (of which I was part or I'd be a lot richer now). They would talk to the marketing departments up and down the food chain and all of them would feed RHK the inflated numbers we all believed. There was no inconsistency visible between components and services. Everyone was swearing by their sales forecasts, and they were pretty much universaly wrong. Part of this has now proved to be fraud.

The first piece of data I saw that suggested the entire model was toast was a graph of carrier free cash flow. This was around mid 2000. It's clear the financial guys who we accused of "not getting it" fired the first warning shots.
DZED 12/5/2012 | 3:09:01 AM
re: RHK: Rest in Pieces Finally! rjm and I agree on something...

Drucker is an all round smart guy, so I'll agree with what he says too, whether or not I fully understand it.

Speculation is what creates the open loop, but then its entrepreneurship which creates valuevout of nothing. I guess its hard to separate the two.

Maybe the only way to damp it down is through capital gains tax on short term investments, say less than five years to mach the typical 'good' startup cycle. This would help focus the minds of VCs, and incidentally why old economies are typically more stable.
rjmcmahon 12/5/2012 | 3:09:03 AM
re: RHK: Rest in Pieces Where does the problem lie?

You might find the following article interesting.

Peter F. Drucker, "The Global Economy and the Nation-State," Foreign Affairs, Vol. 76, no. 5 (1997)

http://www.mtholyoke.edu/acad/...

The article makes me wonder if the creation of money and other intangible and highly liquid "securities" are in an open loop system. An excerpt describing the power of virtual money:

Floating exchange rates have created extreme currency instability, which in turn has created an enormous mass of "world money." This money has no existence outside the global economy and its main money markets. It is not being created by economic activity like investment, production, consumption, or trade. It is created primarily by currency trading. It fits none of the traditional definitions of money, whether standard of measurement, storage of value, or medium of exchange. It is totally anonymous. It is virtual rather than real money.

But its power is real. The volume of world money is so gigantic that its movements in and out of a currency have far greater impact than the flows of financing, trade, or investment. In one day, as much of this virtual money may be traded as the entire world needs to finance trade and investment for a year. This virtual money has total mobility because it serves no economic function. Billions of it can be switched from one currency to another by a trader pushing a few buttons on a keyboard. And because it serves no economic function and finances nothing, this money also does not follow economic logic or rationality. It is volatile and easily panicked by a rumor or unexpected event.
DZED 12/5/2012 | 3:09:04 AM
re: RHK: Rest in Pieces So why does the US lurch from bubble to bubble.
Recently:
Dot com
Opto
Housing

Next:
Defence
Oil exploration

Where does the problem lie?
- Too much free cash around
- Too many dumb investors getting greedy with their pension funds?
- Poor regulation by the SEC

It does seem to me running a company in the US is just a license for execs to fleece VCs and investors.
Still, that alone does keep money flowing around the economy.
rightlight 12/5/2012 | 3:09:04 AM
re: RHK: Rest in Pieces I think those who've figured out how to come out of this content and happy should post how they did it. No smartass "I shorted" or "I sold at the top and bought real estate" please. I talking about those who stuck with it and believed in the merit of this industry.

I'm looking at my buy in of NT after the November bubble popped. It stands at $50, less than half off the peak. Yet my portfolio shows a very very red 95%+ loss. I'm sure lot's of people also thought the post bubble would be something like a 30-50% haircut. But a 90%+ shave? That's the part of the post bubble that handed me my lunch.

RightLight - you can have the right light but on the wrong road.
stluka 12/5/2012 | 3:09:08 AM
re: RHK: Rest in Pieces My only sales experience was a brief stint selling encyclopedia's door-to-door in 1983. I sure wish I had been earning sales commissions at UUNET though instead of just drawing an engineers salary.

Actually UUNET did have reasonably accurate traffic data which was measured at every router and switch interface in the network. Customers were billed based on the P95 traffic load. Peering traffic was measured and used to negotiate peering agreements with other ISPs. Backbone traffic was measured to determine the health of the network.

During the period from 1995 through 2000, customer traffic increased geometrically, roughly doubling every 200 days (not 100 days). Regardless, in 1996, the ILECs and IXCs were continuing to grow there networks at only 15% each year - UUNET was forced to pay premium prices and endure long lead times when leasing circuits for its backbone.

The forecasting model that I created was intended for use at a midyear 1996 conference with all of the ILECs, AT&T, and WorldCom to convince these carriers to build more faster. It was based on best-case sales forecast but more significantly, it incorporated wildly inflated assumptions regarding the backbone capacity needed to support the predicted demand. The model predicted that by midyear 1997, UUNET's underbuilt backbone would need increase 10-fold to support demand at an acceptible level of service. This message was misinterpreted, extrapolated, exaggerated, etc. resulting in probably the most successful vendor management inititative ever executed.

But when UUNET began to believe its own BS and tried to actually grow the backbone at that rate, the folks in capacity planning argued against it. Unfortunately, no one was listening to capacity planning anymore. I transferred to network finance where I was able to prevent UUNET/WorldCom from investing in a number of trans-oceanic cable systems but my influence diminished there as well. I quit the company in disgust in 2001 a few months before the accounting scandal broke.

By the way, Andrew Odlyzko was the first person that I saw publicly challenge the growth estimates that were being touted by the entire industry. Smart guy.
stryke_d 12/5/2012 | 3:09:09 AM
re: RHK: Rest in Pieces Well said, but it is not just in the land of the free that this phenom can occur. If as whyiswhy points out even Switzerland has its foibles it is probably about time we start reconsidering the system(s) we have in place.

Hard to believe that in the end we humans are still driven by seven.
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