Telcordia's Takeover Shortlist

Telcordia Technologies Inc. is searching for a buyer for its OSS and SDP assets, but any sale will require the consent of a major systems integration and development partner, according to a source familiar with the planned sale.

According to an industry executive familiar with Telcordia's plans, Warburg Pincus and Providence Equity Partners , the private equity companies that acquired the OSS giant in November 2004 for $1.35 billion in cash, are looking to sell the telecom software products part of the business but retain the RBOC maintenance business.

Why? Because updating, developing, and launching OSS and service delivery platform (SDP) software requires R&D investments, while the RBOC contracts generate cash but aren't encumbered with development costs. (See Telcordia Lands RBOC Extensions.)

About eight potential acquirers of the software products business have been approached in recent months, with a view to finding a buyer by this June, says our source. That process included conversations with SAP AG (NYSE/Frankfurt: SAP), which was linked with M&A talks with Telcordia as far back as November last year, though the German software giant told Light Reading this week that it is not currently engaged in such talks with Telcordia. (See SAP's Rising in OSS, Is Telcordia Preparing for a Sale? , and Telcordia Up for Grabs Again?)

Our main source did not know the identity of all the companies approached, but said EMC Corp. (NYSE: EMC), which acquired OSS company Smarts in December 2004, and IBM Corp. (NYSE: IBM) were known to be on the list.

Another industry source suggested that Oracle Corp. (Nasdaq: ORCL) or even the major Indian outsourcing and software development firms such as Tech Mahindra Ltd. and Wipro Ltd. may have been approached, but identified IBM as the frontrunner. (See EMC Gets Smarts.)

IBM has been in a buying mood in the OSS sector in the past 18 months, with the purchase of Micromuse in late 2005 its major move into the traditional OSS space. Now it's one of the sector's biggest players. IBM said it couldn't provide comment for this article. (See IBM Buys Another OSS Firm, IBM Tiptoes to Telecom With Micromuse, and IBM Claims OSS Success.)

But here's the twist.

Should Telcordia find a buyer willing to meet its unknown asking price, one of Telcordia's closest partners, Accenture , is believed to have the right to scupper any deal if it doesn't feel it could work well with any potential new owner of the Telcordia assets.

Why would Accenture have such power over another company's M&A decisions, as our sources suggest? It could be because Accenture has invested a lot of time and resources into the ongoing development of Telcordia's OSS products, and been instrumental in taking those products into some carrier accounts, since the two companies signed a strategic alliance in April 2006. (See Telcordia, Accenture Deliver OSS and Telcordia Wins at Wana.)

As part of that alliance, Accenture incorporated Telcordia's OSS products into its Communications Solutions offering to telecom operators, and the two companies have been engaged in joint product development. Telcordia products included in this relationship include its inventory management system (Granite), order management and network design tool (Network Engineer), number management database (Customer Number Manager), and service management product (Service Director).

Accenture and IBM, incidentally, are already partners in delivering software and service solutions to telecom carriers.

Accenture had not responded to questions as this article was published. Telcordia had not responded either, but, as usual, there's a good chance it won't be returning our calls. (See Telcordia Still Sulking.)

Telcordia, which recently appointed a new CEO, is believed to have generated revenues of around $740 million in its financial year to January 31, 2007, and to have revamped its organizational structure earlier this year to create quasi-independent business units dedicated to different business lines. Some industry commentators took this as a sign the company was preparing to be split up with some parts sold off.

Any company acquiring Telcordia's telecom software assets would instantly become one of the sector's biggest and most influential players. In her recent report, "OSS Transformation: Opportunities & Challenges," Heavy Reading analyst at large Caroline Chappell notes that Telcordia is "a giant of the OSS industry, with one of the most extensive portfolios of OSS/BSS systems," which makes it "an obvious candidate to supply operators with an integrated OSS/BSS suite," something that's in demand from large operators undertaking next-generation network transformations.

— Ray Le Maistre, International News Editor, Light Reading