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Ericsson to acquire Telcordia, betting on OSS for growth

While Ericsson will push to retain and expand Telcordia’s product sales, the real growth for Ericsson comes from the opportunity to sell integration and managed services.

Ericsson announced on 14 June that it plans to acquire Telcordia for USD1.15 billion in cash. Ericsson is placing a big bet in the hope that it can significantly expand its ability to provide software and services to telecoms operators by acquiring a company with a strong portfolio of multi-vendor operations support system (OSS) products and a strong position in the North American market.

This is a significant consolidation of the OSS market that increasingly focuses on major integrated suppliers at the expense of independents. Ericsson’s existing OSS and business support system (BSS) products, global scale and strong services combined with Telcordia’s multi-vendor and service fulfilment strengths, will put Ericsson in a unique position as an end-to-end OSS/BSS supplier for new service deployment and OSS/BSS transformation.

In a briefing about the acquisition, Ericsson identified three areas of market growth: mobile broadband, managed services and OSS/BSS transformation. The Telcordia acquisition will help them with both managed services and OSS/BSS transformation. Telcordia’s strong position with North American Regional Bell operating companies (RBOCs) as well as some major operators in other parts of the world gives Ericsson an entre to push managed services in operators where other equipment vendors have stronger positions. While Ericsson will push to retain and expand Telcordia’s product sales, the real growth for Ericsson comes from the opportunity to sell integration and managed services.

Ericsson already has strong OSS capabilities that support its own equipment product lines and has some multi-vendor capability. It delivers these capabilities in every region of the world. Telcordia’s products are complementary. Ericsson will get immediate value from being able to push Telcordia’s products into regions where Telcordia was weak and provide professional services that were being handled by independent systems integrators (SIs). The combination of Ericsson’s existing OSS and BSS products, global scale, and strong services with Telcordia’s multi-vendor and service fulfilment strengths, put Ericsson in a unique position as an end to end OSS/BSS supplier for new service deployment and OSS/BSS transformation.

This combination is a mixed blessing for communications service providers (CSPs). For those looking for a total solution provider, it makes Ericsson more attractive than ever as a supplier. For those looking for OSS solutions not tied to a major equipment or IT vendor, it eliminates one of the few independents left. It continues the trend of integrated telecoms and IT suppliers acquiring independent software vendors.

Competitively, this acquisition puts Ericsson in a much stronger position in relation to its major equipment competitors: Alcatel-Lucent, Nokia Siemens and Cisco Systems. Telcordia gives Ericsson a much stronger position as a multi-vendor OSS supplier, which may allow them to take overall end-to-end management and services business. The other equipment vendors will be more reliant on equipment sales, which generate lower margins than services and are harder to differentiate. The acquisition also puts Ericsson in a stronger position in relation to major IT suppliers such as Hewlett-Packard, IBM and Oracle. It will help Ericsson beat back the threat from these IT suppliers in services and service delivery platforms.

The acquisition has significant risks for Ericsson. The biggest risk is that it will lose the multi-vendor benefit that Telcordia brings. Virtually all of Telcordia’s OSS business is tied to multi-vendor deployments. If CSPs see Ericsson as unreliable in multi-vendor support, Ericsson will lose almost all the expected benefit of the acquisition and allow its competitors to recover from the threat of Ericsson as an end-to-end supplier.