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Unchecked M&A Opens Opportunities for Innovative Companies


THE CURRENT WAVE OF MERGERS

and acquisitions (M&A) in the communications industry has grown over the last few years and culminated with the announcement of AT&T Inc.s and BellSouth Corp.s new relationship. Though the financial gains of this deal are far from ideal, the real impact will be on the employee and services front.

A large company melded together from old-world monoliths, such as these two, means antiquated management theories that will likely be followed by a purging of employees. Once the C-level executives realize the financial losses due to obsolescence of equipment and new communication technologies, the newly formed conglomerate may find itself out of date with wire-based networks in todays IP market.

The advantage for smaller companies is to link and partner to create a robust value chain for the market. By maintaining flexibility, companies can transition with each new wave of adoptions by capitalizing on their various strengths. A company that is financially and strategically positioned to evaluate the value of new technologies and transition customers into the future will find the larger corporations cannot compete on price, service or maintenance.

The communications industry is no different when it comes to the importance of embracing technology. Consider the introduction of the Carter Phone. AT&T and the Bell operating companies saw the beginning of the end with its introduction, and the industry was forever changed by the divestiture of the Bell system. Todays companies should take a page from their own history books and orient themselves toward the changing nature of global communications.

The winners in the M&A game will be companies that recognize the importance of integrating cellular and wire, and managing both under an IP cloud. We should look to these companies for successful examples of how to change to support mobility and the globalization of communications. Those that focus on connectivity and deliver feature-rich applications will win the customers who are first-adopters and are loyal to the innovators.

Looking ahead, connectivity will continue to grow through IP, similar to the cellular revolution of the last two decades. The lower market-entry-threshold inevitably will lead to VoIP companies popping up across the nation. Buying these companies would be the smartest move to integrate customer service, QoS and billing into organizations that can handle higher customer volume. The elimination of high capital investments and the introduction of technology that can make working remotely a more viable alternative will allow companies to invent new niches and bring a larger array of options to customers.

The smaller deals likely will be the next wave of M&A activity as the remaining companies will have larger issues to manage, such as foreign owners and poor financials. The Nortel Networks/Siemens AG and Alcatel/Lucent Technologies deals are least likely to come to fruition in 2006 because of cultural and economic differences, as well as operating standards inherent to intercountry markets.

Looking at M&A trends from a global perspective, the increase in enhanced international connectivity also lends the market to multinational M&A activity among the powerhouse markets, like China. Many communication vendors also may find themselves with foreign interests for acquisition, as well as large implementations across the globe. The ability to collaborate across borders without wires creates a vast opportunity for interaction among previously independent organizations.

As a result of this M&A activity, companies in the interconnect, dealer and partner arenas potentially could see a decrease in sales and services due to the recently created redundancy in resources. To avoid this backlash, companies within the sales channels should refocus their business models, invest internally in training and certification of new technology, and expand into new market segments. Being prepared to react strategically to M&A activity is the key to a strong future. Also, consider banding together to provide a value chain that delivers a comprehensive service solution from multiple partners. Another key to survival is to stay in ancillary areas, as the metro areas already are saturated with big players.

As an example, I founded SOURCE Inc. in 1971 to buy and sell used telephone systems, but in order to survive in todays changing market, we have had to strategically reposition the company to ensure its survivability. Over the past several years, SOURCE has reinvented itself to become a provider of communications systems and equipment. Today, SOURCE has grown to include business partnerships with major industry manufacturers for new equipment as well. Managed by superior IT systems that drive processes and record transactional data, our expanded service offerings include installation, disaster recovery, equipment repair, internetworking support, and complete IP telephony system design, implementation and support.

Succeeding in the new telephony environment requires a reinvestment of resources to ensure that qualified team members can successfully create and implement new technology designs. SOURCE has stayed current on fast-developing technology through its dedication to internal training and education. In addition, we support our team by continually evolving our information systems to assist employees with accurate and real-time information, thus strengthening our ability to provide quality customer service.

Staying competitive in todays communications world requires creativity and flexibility something traditionally structured vendors have had great difficulty doing. Expeditious adaptation of new technology is something that cant be easily replicated by the slower-moving giants. Companies that drive the industry may find themselves operating on a different plane than the mega-companies organized of late. Investing in technology and being organizationally pliable is the key to further development in the industry beyond the tsunami of M&A in the marketplace.

A 35-year veteran of the telecom business, David Potter is founder, president and CEO of SOURCE Inc. He can be reached at dpotter@source.com.

Links
SOURCE Inc. www.source.com

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