Telecom Software : The Tipping Point

Once a hot vertical, telecom software services portfolios of many companies
saw lesser growth compared to its previous year, much to the disappointment of
many companies. If we look at the telecom software business, there are two kinds
of players that exist in the Indian market. One comprises IT services companies
like Infosys, Wipro, etc, for which telecom as a vertical is a significant slice
of their top line revenues. Companies like Subex or Sasken, which are pure play
telecom solution providers, fall in the second category. The vendors' concern
over the decline in growth came from the fact that most of the mid to small
companies offering telecom solutions had a couple of big clients and, hence, any
upset on the client side adversely impacted their telecom based solutions
offerings. For instance, some of the Indian services providers which have Nortel
as one of their big clients have suffered due to Nortel filing for bankruptcy.
Cases such as BT-which going by industry rumors, has not extended its contract
in the last quarter to some of its major offshore partners-sketch a picture of
gloom. No wonder, some of the service providers this time refused to divulge
details of their telecom revenues and to talk about their performance. Despite
VOICE&DATA's best efforts companies like Infosys, which have their numbers on
public domain, refused to reply to our queries. Other players like Sasken and
Subex have not yet released their Q4 results. So this scenario in a way surmises
the state of affairs on the telecom software front and shows that most of the
vendors will see the revenues from this vertical stagnating further in the
ongoing year.

Vendors in the Fray

Infosys, which derives a significant portion of its revenues from telecom
vertical, saw a decline in telecom vertical's total contribution to its top line
in 2008-09 compared to 2007-08. The company refused to share the stand-alone
telecom software revenues. Infosys has a rich set of solutions and offerings for
the telecom industry. In fact it has seven out of the top ten communication
service providers worldwide as its clients.

Meanwhile, for TCS the emphasis over the last year was on expansion of
services and new engagement with clients in growth markets. TCS also saw growth
in existing telecom accounts due to significant cross-sell opportunities, and
positioning of new service offerings for large enterprises.

It's been a good year for Wipro on the telecom software front. According to
the company sources, Wipro won mandates on the entire value chain of the telecom
industry. It also expanded its presence in geographies and types of services it
offered to the telecom industry. Some of the key wins during the year for Wipro
included its multi-year strategic engagement with a major French Telecom
company. It also embarked on a first-of-its-kind initiative for a leading
telecom service provider in Asia which involves construction of a completely
'green' national data center for the company's nationwide IT and telecom
requirements.

One of the interesting solutions that Wipro launched in FY 2008-09 was its
RAPIDS (Rapid Application Integration and Deployment Solution) a OSS/BSS
solution for communication service providers to roll out services quickly and
cost effectively. The solution was launced as a part of the company's PACE
portfolio and can reduce time-to-market and total cost of ownership by 40%-an
attractive cost-management prospect. A look at the year went by shows good
growth for Tech Mahindra. According to company sources, it focused on upping its
cost efficiencies that resulted in overall good profitability despite the tough
economic conditions. Significant highlights over the last year include the
company partnering with one of the largest telecom equipment manufacturers for
the development and sustenance of its major proprietary platform for mobile
handsets.

For Subex, it was a relatively good year. While the company has not yet
announced its Q4 results for FY 2008-09, a look at the first three quarters puts
the revenues for the nine month period at Rs 438 crore. Being a global OSS/BSS
provider, the company in Q4 of FY 2008-09 re-branded its erstwhile cost
assurance solution, targeted at communication service providers, to help them
protect and enhance margins by effective cost assurance measures. The solution
is now called Lucreta. Company sources say that Lucreta primarily helps service
providers to focus on efficient management of costs, an area ignored by many
until now, in order to achieve higher profitability. The key feature of Lucreta
is its ability to utilize network resources efficiently to reduce network costs.
These include leased circuit costs, access costs, as well as interconnection
costs. This will also help service providers to adopt lean operating principles
by automating invoice verification processes, quickly resolving disputes, and
expediting internal and external audit compliance.

Outlook

Apart from the big companies, there are many small players in the telecom
software solutions fray, and each have a niche base of clients cutting across
OSS/BSS to other solutions. Given the challenging economic conditions, the
outlook for telecom software is one of cautious optimism. Small and mid-sized
companies will face severe pressures in FY 2009-10, as they usually depend on
one large client each, which contributes significantly to their revenues. Hence,
client and solution diversification, and entering into new geographies hold the
key for growth in this segment.

Shrikanth G

shrikanthg@cybermedia.co.in