Telcordia Up for Grabs Again?

OSS giant Telcordia Technologies Inc. is rumored to be in takeover talks with German software firm SAP AG (NYSE/Frankfurt: SAP) less than two years after being acquired by two major private equity firms.

The news comes as an appeal court in South Africa found in Telcordia's favor in the OSS firm's long-standing legal battle with national carrier Telkom SA Ltd. (NYSE/Johannesburg: TKG). More on that on page 2.

Acquisition speculation
According to a report issued by specialist publication Vanilla Plus, Telcordia and enterprise resource planning (ERP) giant SAP are in discussions regarding an acquisition that would cement an existing relationship.

Telcordia representatives could not be reached for comment, while a SAP spokeswoman says she is not aware of any such talks.

If SAP makes a move, though, it will likely need to stump up significantly more than the $1.35 billion that Providence Equity Partners and Warburg Pincus paid for Telcordia in March 2005. (See Telcordia Purchase Closes and HQ Sale Funds Telcordia Deal.)

Since then, Telcordia has broken into important new markets, such as service delivery platforms (SDPs), IMS (IP Multimedia Subsystems), hosted MVNOs (mobile virtual network operators), and India. It has also formed a strategic alliance with global systems integrator Accenture . (See HP, Telcordia Hop SDP Bandwagon, OSS Firms Jump on IMS, Telcordia, Accenture Deliver OSS, Telcordia Wins Mickey Deal, and Telcordia Forms Indian Unit.)

It has been making better progress with the new network inventory capabilities it gained through the acquisition of Granite Systems, and was named as the market leader in inventory, network resource management and service fulfillment by industry analysts at OSS Observer . (See Telcordia Enhances Its OSS and Telcordia Boasts Market Leadership.) Telcordia's position in the SDP world makes it an attractive target for large enterprise software firms looking to capitalize on carriers' needs for new back office capabilities, believes Heavy Reading analyst Caroline Chappell.

In a recent Light Reading Services Software Insider report, "SDP & IMS: Changing the OSS Landscape," Chappell noted that services competition from the likes of Google (Nasdaq: GOOG), eBay Inc. (Nasdaq: EBAY), Yahoo Inc. (Nasdaq: YHOO), and media companies requires changes in the carriers' IT capabilities.

"If telcos are to compete as service providers against competitors from other industries that have already integrated and automated IT systems based on the ERP model, they urgently need similar systems of their own. The race is on for an OSS vendor to become the SAP of the telco market." (See IMS, SDP Revolutionize OSS.)

Chappell took that view a step further, noting that ERP vendors are likely to buy their way into the SDP sector through acquisition.

Such a move by SAP would not be against the current OSS acquisition grain, as many of the largest telecom software acquisitions of the past few years have been made by large IT and software companies looking to increase their presence and product portfolios in the telecom sector. (See Oracle Buys More OSS With MetaSolv, Oracle Acquires Portal, CA Makes Wily Acquisition, and IBM Tiptoes to Telecom With Micromuse.)

SAP already has a significant place in service provider back offices, mostly as a provider of its supply chain management and ERP tools, and claims to have more than 80 percent of the world's Top 500 carriers as customers.

To Page 2But SAP also provides less generic and more telecom-specific capabilities as a provider of customer relationship management (CRM), billing mediation, and network planning and lifecycle management software. Deployments are often in tandem with more specialized telecom players. (See Swisscom Uses GE OSS, Bouygues Uses Comarch, and Siemens Wins SAP Deal.)

Among SAP's carrier customers are Cable and Wireless plc (NYSE: CWP), Deutsche Telekom AG (NYSE: DT), Telecom Italia (TIM) , SK Telecom (Nasdaq: SKM), Telefónica SA (NYSE: TEF), and Vodafone Group plc (NYSE: VOD).

SAP also has a strong list of vendor partners, including Cisco Systems Inc. (Nasdaq: CSCO), Fujitsu Ltd. (Tokyo: 6702; London: FUJ; OTC: FJTSY), Nokia Corp. (NYSE: NOK), and Siemens Communications Group . (See Cisco Speaks Applications.)

But OSS consolidation has left SAP with potentially unstable partnerships. Two of its strongest telecom software partners have been inventory management firm Cramer Systems and billing systems vendor Portal Software. Now these two companies are under new ownership by Amdocs and Oracle respectively. (See Cramer Partners With Alcatel, SAP, Amdocs Snaps Up Cramer, Oracle Acquires Portal, and Portal, SAP Team Up.)

With SAP keen to play a greater role in the telecom sector -- especially in helping carriers manage the operational challenges they face as they move into Web services and media content provision -- it may need to strengthen its hand in terms of in-house capabilities.

Telcordia wins court case
So the marathon legal battle with Telkom SA is over, with South Africa's Supreme Court of Appeal upholding the appeal made by Telcordia against the initial 2003 judgment made in favor of the carrier.

The details of the case are well documented. Basically, back in 2000 Telkom didn't think Telcordia had met with some contractual obligations and cancelled an order for an activation and service assurance system. The OSS company then initiated legal proceedings in 2001, and demanded the $130 million it believed it was due. (See Telkom vs Telcordia: Case Not Closed and Telcordia Leaves Legal Luggage.)

Now Telkom is in a pickle, as it hadn't factored a big payout into its accounts. While the carrier says it doesn't know how much it will be told to pay out, it will be $130 million plus interest, with South African media estimates putting the figure at up to $220 million. The carrier admits it hasn't made any provisions for a payment, and notes, in a prepared statement, that its "legal team is considering the possibility of other avenues which may be open to Telkom."

The Supreme Court ruling has always been seen as the final act in the case, though.

While the court's decision is good news for Telcordia, it won't be gaining financially. As part of last year's acquisition, Telcordia's former parent, Science Applications International Corp. (SAIC) , "retained legal and financial responsibility and control for this matter," and will bank the proceeds.

— Ray Le Maistre, International News Editor, Light Reading