Parallel Universes

Posted: 03/1999

The Letter


Parallel Universes

Bob Titsch Jr.Large
equipment vendors have concluded that it’s too much to ask customers to install,
configure, integrate and manage the complex technologies this industry continues to pull
together, which is why–through acquisitions and mergers–they are rapidly evolving into
technology superstores. Soon they will be capable of equipping service providers with
most, if not all, of the tools they need in today’s changing marketplace.

Given the direction equipment vendors are heading, Murray Hill, N.J.-based Lucent
Technologies’ acquisition of Ascend Communica-tions Inc. comes as no surprise. It’s been
known for years that data and voice are converging, and that data and voice equipment
vendors would marry. The Lucent-Ascend deal is logical, not to mention one of the sexier
items in recent months from a positioning (and reporting) standpoint, as is Lucent’s
recent purchase of Kenan Systems Corp., a billing, order-processing and customer care
software vendor, for $1.48 billion.

Consolidation within the billing and customer care industry has been steady, but the
Kenan deal is the first acquisition from the outside; the first consolidation that extends
the product reach of an equipment vendor exterior to the billing and customer care
community. In Kenan, Lucent acquires what some call the "Rolls Royce" of billing
and customer care software, a new sales channel and, significantly, immediate access to a
number of incumbent and emerging carriers. In Lucent, Kenan gains a marquee player with
expertise, resources and global reach, free access to its applications programming
interfaces (APIs) and, of course, the money.

The fact that Lucent paid such a high multiple for Kenan–roughly 100 times monthly
sales–tells us something about the perceived value of the acquisition. A sizable chunk of
that value involves the psychology of unification, stability and ease in an environment
marked by rapid technological change and uncertainty over the integration of divergent

Like the service providers they equip, Lucent and other equipment giants are
transitioning into one-stop shops that can take all of this complicated stuff out of the
customer’s hands. As much as any carrier wants choice and competitive pricing, the idea of
a stable vendor that can set up a service provider from soup to nuts is a powerful one.

Will this trend stifle competition between industry vendors? No, it will stimulate more
of it. Like the entrepreneurs pouring out of mergers and acquisitions between service
providers to raise capital and start their own companies, so too will the officers and
executives of consolidated vendors.

Bob Titsch Jr.
Group Editor
Telecom Division
Virgo Publishing Inc.

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