Report Title in the blue bar

Transcription

1 January 2013 Redknee to Acquire Nokia Siemens Networks (NSN) Report Business Title size Support and Systems position (BSS) text box Assets to center Report Title in the blue bar Stratecast Analysis by Karl Whitelock Troy Morley OSS/BSS Global Competitive Strategies (OSSCS) Volume 14, Number 01

2 Redknee to Acquire Nokia Siemens Networks (NSN) Business Support Systems (BSS) Assets Introduction 1 The communications industry is shifting focus from the delivery and monetization of network-based access to business models that offer advanced multi-source services delivered via an alwaysimproving broadband network connection. This change in direction is now placing a heavy burden on many organizations to update their business strategies. A change in strategy certainly applies to the communications service provider (CSP) sector, as traditional voice and text-based services continue to show negative growth. A strategic adjustment applies to the network equipment manufacturer (NEM) market, as several factors have come together to drive down prices, and even demand, for certain types of technology. A redirection in business focus is also needed in the OSS and BSS marketplace, where mergers and acquisitions over the past two years have significantly redefined the supplier landscape. And, new OSS BSS suppliers have come to life in an attempt to better meet today s rapidly changing business requirements. Typically, when a company acquires all or a part of another, certain business and market conditions drive the event. For example, the acquired company is in need of a capital infusion; or the acquiring company views an opportunity to remove a smaller and, often, more agile competitor (the acquired company) from its target market; or it is the right time to augment the acquiring company s assets with those from the acquired company, to take its solution offering to a new level one plus one equals three or more thinking. While there are several additional reasons that can spark merger and acquisition (M&A) activity, rarely is the acquiring company smaller than the acquired one. When such an event happens, it is time to take notice of the motivation and business drivers behind it. This report focuses on why a relatively small, Toronto-based business support systems (BSS) supplier Redknee was successful in acquiring key parts of the Nokia Siemens Networks (NSN) BSS portfolio. 2, 3 It will explain why NSN found Redknee the best suitor for its BSS assets; and how NSN views this transaction as a win, not just for Redknee, but for the customers that Redknee gains from the deal. The report also answers why this acquisition is important for the industry as it provides insight into the plans the new company has for moving ahead. 1 In preparing this report, Stratecast conducted interviews with representatives of the following company: Redknee Lucas Skoczkowski, CEO Redknee Chris Newton-Smith, VP Marketing Please note that the insights and opinions expressed in this assessment are those of Stratecast and have been developed through the Stratecast research and analysis process. These expressed insights and opinions do not necessarily reflect the views of the company executives interviewed. 2 Redknee is a public communications software company, based in Toronto, Canada, and traded on the Toronto Stock Exchange under the symbol RKN. The company s software provides retail billing, mobile money, mobile marketing, next generation data and content services, wholesale billing and customer care solutions to CSPs around the world. Redknee reported financial results for fiscal year 2012 of $57 million, from a customer base of 97 CSPs in 50 countries. 3 Nokia Siemens Networks (NSN) is a global provider of telecommunications network equipment and OSS BSS solutions. Based in Helsinki, Finland, the company has operations in 150 countries worldwide, with an employee base of approximately 60,000 personnel. NSN is comprised of the former Siemens AG s COM division (excluding its Enterprise business unit) and Nokia s Network Business Group. While NSN is a public company, it is reported as part of Nokia, under the symbol NOK1V on the Helsinki Stock Exchange and under the symbol NOK on the NYSE. Nokia and NSN 2012 revenues were reported on January 24, NSN 2012 revenue was 13.8 billion, or approximately $17.7 billion. OSSCS 14-01, January 2013 Stratecast Frost & Sullivan, 2013 Page 2

3 Analysis of the Industry: Why Redknee, and Why Now? Customers are asking for a relatively simple to articulate, yet complex to provide, set of needs to be met by the communications marketplace. These needs apply not just to consumers, but to enterprise and business customers as well. For example, all customers want anywhere broadband access. They ask for usage plans to run the newest user device that is both affordable and sensible. They want apps that make life better, simpler and more understandable for them; in addition to using video communication and social media as an alternative to traditional voice and text messaging. They want network access alternatives and a continuous wave of cool new stuff that holds their attention in the form of new device technology, new solution options, new apps, and even new ways to sign up or bill for the services they consume. Customers want usage transparency to know when to cut back before exceeding a data plan limit, so as to avoid a grossly largerthan-normal bill. Employees also want access to corporate information from personal devices, to better facilitate a work-life balance. They want the personal information stored on these devices to remain personal and safe from employer access or wiping. Employers, on the other hand, want a split of charges between personal and company usage of these devices, along with a viable means for keeping corporate information secure. 4 The secret sauce lies in solutions that incorporate a number of critical functions to meet today s new business realities, including: Real-time usage data collection Policy-enabled real-time rating & charging Near real-time usage analysis, to offer customers additional retail opportunities Display of charges whenever a customer event completes To satisfy current customer needs, it will take real-time systems. This means instituting pricing strategies that involve real-time and policy-enabled rating & charging for all customers, not just for prepay or postpaid groups, which are payment method designations with little focus on how to effectively meet customer needs. Stratecast believes that future business success for not just the changing communications marketplace, but business in all industries rests with how quickly the end-to-end monetization, customer experience, and partner compensation processes can be addressed whenever business change occurs. Partner notification of content usage All of these functions must work together flawlessly in today s fast developing, real-time service enablement reality. Understanding these basic needs, Redknee presently offers a range of billing-related offerings within its TCB solution, which is a fully convergent billing system supporting postpaid, prepaid & hybrid 4 For additional insight concerning secure mobile containers a software enclave hosted on an end-user s mobile device, which isolates and protects corporate data used and stored along with the business operations conducted on that device please see Stratecast report SPIE Securing the Mobile Experience with Containers, December 7, For more information on how to obtain this Stratecast report or any other Stratecast or Frost & Sullivan report, contact your account executive or to inquiries@stratecast.com. OSSCS 14-01, January 2013 Stratecast Frost & Sullivan, 2013 Page 3

4 subscribers. It enables billing across all services mobile, broadband, and fixed line through a single modular, convergent solution. TCB's rating module (URCS) supports both real-time rating and near real-time rating for offline events. TCB is sold today through a traditional license model, as a term license, or as a fully managed, cloud-based solution hosted at Redknee remote sites. While Redknee provides its TCB portfolio to address the needs of 97 CSP customers throughout the world today, it approached NSN more than 10 months ago to discuss a partnership for providing NSN customers with a cloud-based billing solution option. Through these discussions, NSN worked with Redknee to craft the terms of an agreement that would not only allow Redknee to provide NSN billing customers a cloud-based billing overlay to their existing rating & charging solutions, but NSN would transfer its billing assets and corresponding customers to Redknee through a purchase agreement. Details of the Deal The proposed Redknee acquisition of NSN s business support systems was announced on December 5, 2012, through a joint-company press release. 5 Redknee receives NSN s key BSS assets, along with 130 customers and 1,200 NSN employees. In exchange, Redknee expects to finance the transaction through a combination of cash on its balance sheet and debt facilities. Such debt facilities are subject to conditions, and will be entered into on, and subject to, closing of the acquisition. The total consideration paid by Redknee for the NSN BSS assets will include 15 million in cash at closing, plus a maximum of 25 million for certain performance-based cash earn-outs expected to be paid over 12 to 36 months post-closing. The acquisition is expected to close after appropriate regulatory and shareholder agreements during the first half of Every two years, Stratecast prepares a market-share analysis and forecast for the key billing functions of mediation, rating & charging, other core billing, policy management, interconnect and settlements and partner management. A new edition of the billing report series is currently in preparation. Based on the Stratecast research process, NSN has been identified as one of the top 10 global billing solution suppliers, with billing revenue far in excess of what the acquiring company, Redknee, publicly reported in its last filing. 6 Stratecast analysis of the reasoning by NSN to sell its billing assets to Redknee requires a deep look at the overall CSP billing solution market, which will be provided in a later section of this report. What Redknee Receives, and What Stays with NSN Redknee will acquire certain, but not all, of NSN s BSS assets. The acquired assets are: NSN charge@once unified charging and billing solution NSN charge@once mediate Convergent Mediation for data charging NSN Policy Control Server 5000 (PCS 5000) NSN GSM-R Intelligent Network (IN) solution 5 For the full press release see 6 Redknee, also identified as an end-to-end global billing solution supplier through the Stratecast research process, reported 2012 fiscal year (ending September 30 th ) revenue of $57 million. OSSCS 14-01, January 2013 Stratecast Frost & Sullivan, 2013 Page 4

5 Not included in the asset sale to Redknee are the following NSN BSS solution components: Portions of the NSN Integrated Policy and Charging Control solution including: o Subscriber Profile Repository based on the NSN One-NDS subscriber data management system o Deep packet inspection (DPI) and policy control enforcement function (PCEF) provided through the NSN Flexi Intelligent Service Node and NSN Flexi Network Gateway. NSN charge@once mediate Convergent Mediation for standalone mobile broadband customers. This solution, though identical to the NSN charge@once mediate Convergent Mediation for data charging solution, is specifically focused on bringing together the mobile broadband and data core network components from NSN with installed other vendor billing systems in operation with certain NSN customers. This mediation solution is not included in the Redknee asset acquisition. NSN CEM on Demand solution Short descriptions of the NSN BSS assets that Redknee will acquire with the acquisition deal are detailed below. NSN charge@once unified charging and billing solution The NSN charge@once unified (rating & charging engine) offers rating and charging of content, events and sessions in circuit and packet-switched networks, independent of payment method. It is a modular, scalable and flexible product, which uses a customer-centric approach. It provides open interfaces for integration with a CSP s existing charging and billing environment. It covers the telecom layer, and is prepared for integration with enterprise layer systems (CRM, ERP) by providing telecom layer access functions. The NSN charge@once unified rating & charging billing engine, in addition to the NSN charge@once mediate Convergent Mediation for data charging offering, are parts of the NSN charge@once unified charging and billing solution. As NSN explained to Stratecast, this suite of products provides flexible, scalable, and highly reliable rating & charging and balance management across all networks, services, and payment methods. The NSN charge@once unified charging and billing solution can be deployed in multiple configurations including: 7 Online prepaid charging Online convergent prepaid and postpaid charging Online and off-line convergent prepaid and postpaid charging It delivers account and balance management functions, including account hierarchy, charge redirection and sponsored charging, in addition to full customer notification and top-up capabilities. 7 Insight concerning the NSN charge@once unified charging and billing solution was originally published in Stratecast report OSSCS 12-14, Global CSP Billing Part 4: Rating & Charging and Other Core Billing Functions Market Forecast and Supplier Assessment, December 2011, p OSSCS 14-01, January 2013 Stratecast Frost & Sullivan, 2013 Page 5

6 The solution is also an integral part of the NSN Integrated Policy and Charging Control solution, the company s policy management offering. NSN further explained to Stratecast that the NSN charge@once unified charging and billing solution is not only modular, as previously implied, but embraces a technical architecture, built on Java, and an Oracle relational database structure. Over 550 million end-customers are now addressed by the NSN charge@once unified charging and billing solution. NSN charge@once mediate Convergent Mediation for data charging NSN explained to Stratecast that the NSN charge@once mediate Convergent Mediation for data charging solution acts as a mediator component that provides the necessary data conversions and protocol-level integration between network elements or other systems. It is viewed as an integration tool that can be used to integrate any type of system through its generic data collection and processing capabilities. 8 The charge@once mediation solution is a fully convergent solution; it not only supports the traditional billing mediation function, but can also be deployed to cover: online mediation; policy control; OSS mediation; and extract, transform, and load (ETL) for data warehouse and business intelligence applications. It is designed to meet specialized functionality, availability, and scalability requirements from the charging, billing, enterprise and OSS domains. NSN reports over 130 deployments of the solution worldwide. The NSN charge@once mediate Convergent Mediation for data charging solution addresses the needs of both online and off-line charging via its off-the-shelf support for many leading protocols and data formats. Its data analysis and transformation capabilities include: Data collection, correlation, aggregation, routing, filtering, and load balancing Data formatting, translation and loading Data consolidation from any number of sources The NSN charge@once mediate Convergent Mediation for data charging platform is provided through an OEM relationship with DigitalRoute. It was combined with additional NSN software extensions to give the solution its full functional capabilities. NSN Policy Control Server 5000 (PCS 5000) NSN explained to Stratecast that the NSN Integrated Policy and Charging Control solution covers intelligence gathering, policy management, policy enforcement, subscriber data management, and online charging. 9 Key components of this solution are: Online rating & charging provided through the NSN charge@once unified charging and billing solution 8 Insight concerning the NSN convergent mediation solution was originally published in Stratecast report OSSCS 12-11, Global CSP Billing Part 3: Mediation Market Forecast and Supplier Assessment, October 2011, p Insight concerning the NSN policy control server 5000 (PCS 5000) was originally published in Stratecast report OSSCS 13-01, Global CSP Billing Part 5: Policy Management (Policy Reference) Market Forecast and Supplier Assessment, January 2012, p OSSCS 14-01, January 2013 Stratecast Frost & Sullivan, 2013 Page 6

7 Policy control and management, also known as policy control reference function (PCRF) within the 3GPP mobility standards, is addressed by the NSN Policy Control Server 5000 (PCS 5000) Subscriber Profile Repository based on the One-NDS subscriber data management system Deep packet inspection (DPI) and policy control enforcement function (PCEF) provided through the NSN Flexi Intelligent Service Node and NSN Flexi Network Gateway While Redknee will not acquire the NSN One-NDS subscriber data management system, nor will it acquire the NSN Flexi Intelligent Service Node and the NSN Flexi Network Gateway, a key part of the integrated NSN policy management solution that will become a part of the Redknee acquired assets is the NSN PCS 5000 product. It is a convergent policy server that supports both fixed and mobile access networks. It is a 3GPP compliant PCRF, supporting the following roles: 3GPP PCRF ETSI TISPAN SPDF & RACF Convergent Policy Server Cable Policy Server WiMAX Policy Server PCRF for LTE As NSN explained to Stratecast, an integrated approach to policy management involving a tight integration between the PCRF and a real-time rating & charging engine such as the NSN charge@once unified charging and billing solution enables a variety of use cases, including: Fair Use Policy per subscriber or per service type Monthly subscription with volume cap and restricted speed when the limit is reached Daily Bundles with usage cap Cost Control Bill Shock Prevention Bandwidth on Demand Application or Subscriber prioritization Charging by QoS: traffic prioritization in case of congestion Different wallets with parental or superior control Different wallets for business or private use of a service associated with different QoS and related charges NSN reported that approximately 62 customers have deployed or were in proof of concept (POC) trials with the NSN Integrated Policy and Charging Control solution through October Because the PCS 5000 is an integral part of the end-to-end NSN Integrated Policy and Charging OSSCS 14-01, January 2013 Stratecast Frost & Sullivan, 2013 Page 7

8 Control solution, NSN will OEM the PCS 5000 component from Redknee for all future integrated policy management solution offers it may provide. NSN GSM-R Intelligent Network (IN) Solution The NSN GSM-R is a mature solution for the communication challenges facing railway operators, especially high-speed passenger-carrying trains. It comprises various components that are utilized in this and other NSN solutions. These components are flexible and designed to interplay and interconnect with one another. They include: Nokia mobile switching center (MSC) Nokia Gateway GPRS Support Node (GGSN) Nokia Serving GPRS Support Node (SGSN) Nokia Base Station Controller (BSC) and Transcoder and Rate Adaption Unit (TRAU) NSN Base Transceiver Station, known as the NSN FlexiBTS NSN FlexiHopper family of microwave radios integrated directly into the BTS NSN Short Message Service Center (SMSC) The final component in the NSN Railway GSM-R offering is the NSN GSM-R Intelligent Network (IN) solution. It is part of the Redknee BSS acquisition process. This solution is dedicated to railways, being geographically redundant and specially tailored to meeting the GSM-R functional requirements. It possesses all European Integrated Railway Radio Enhance Network (EIRENE) features and others also specific to railways. These include an Acknowledgement Center (ACKC) integrated into the IN which is a direct interface to railway positioning elements, allowing enhanced Location Dependent Addressing (elda) calls with exact train position and onboard functional calling. The GSM-R IN solution is based on the NSN charge@once unified charging and billing platform, with specialized functions added to address the necessary GSM-R standards specification. Once the Redknee BSS acquisition finalizes, NSN will OEM the NSN GSM-R Intelligent Network (IN) solution from Redknee for all future NSN GSM-R railway communications offers. Stratecast Analysis of How Redknee Won the Deal In mid-2011 Nokia and NSN announced a major change in business strategy; one that would bring the future direction of the company sharply focused on the mobile broadband market. 10 With the sale of key parts of the NSN BSS solution suite to Redknee, along with the sale of NSN s optical network business to Marlin Equity Partners, NSN signaled its intent to change See June 15, 2012 press release, Nokia Sharpens Strategy and Provides Updates to Its Targets and Outlook, 11 See December 3, 2012 press release, Nokia Siemens Networks Reaches Agreement to Sell Optical Networks Business to Marlin Equity Partners, OSSCS 14-01, January 2013 Stratecast Frost & Sullivan, 2013 Page 8

9 With Nokia and NSN focused on the mobile broadband market, the 130 billing customers that Redknee receives from the acquisition are many of the same customers that Nokia and NSN will target with the organization s new mobile broadband strategy. As a result, Stratecast believes all other network equipment manufacturers (NEMs) would be viewed by NSN as direct competitors to this strategy. Hence, Alcatel-Lucent, Cisco, Ericsson, Huawei, Juniper, NEC and ZTESoft were not viewed by NSN as the right fit for this deal. Stratecast further believes other large BSS companies that could have acquired the NSN BSS assets, but were also judged as not the best fit by NSN, include the following: Amdocs There would likely be significant business model conflict with NSN customers Comverse Comverse is presently very focused on its recent re-launch on NASDAQ, following several years of internal financial tumult caused by mismanagement steps of the former executive team CSG International CSG previously acquired global billing solution supplier Intec in 2011, which brought CSG out from its deep concentration on just the cable billing world and into the global real-time billing market, with full end-to-end convergent billing capabilities NEC-NetCracker NetCracker acquired the billing assets of Convergys in March 2012, and is heavily involved with sorting out its own going-forward business strategy with these acquired assets and customer base Oracle While global, with several CSP core customers, Oracle would view the NSN billing assets as redundant to its own real-time, policy-driven convergent billing solution SAP SAP received a real-time rating & charging asset when it acquired Highdeal, approximately four years ago, which was adapted to meet the real-time billing needs of multiple industries. Stratecast believes SAP would find the NSN billing assets too industryspecific to work within its multi-industry business strategy. Stratecast believes there were other potentially well-suited billing suppliers that may have worked well with NSN; however, it is evident that Redknee started discussions with NSN concerning the opportunity to partner, and the deal blossomed from there. While it is likely that NSN went through its best suitor analysis and discussion with multiple companies, in addition to Redknee, the best suitor selection process involved multiple steps tied to product compatibility, support for employees, geographical customer overlap, and related business needs. At the end of this analysis, NSN s final selection choice was Redknee. As the company explained to Stratecast, the key values NSN appreciated in Redknee were: Redknee s overall customer focus and track record of meeting its customers needs Redknee s commitment to support installed customer solutions, and provide product support for those solutions, as long as CSP customers want them Redknee s management team experience in working with dispersed human resources for not only sales, but customer support and R&D The company s strong understanding of the customer market it would be managing as the NSN customer base transfers to Redknee Minimized overlap in geographical customer spread OSSCS 14-01, January 2013 Stratecast Frost & Sullivan, 2013 Page 9

10 Redknee s commitment to keep all NSN employees, in order to maintain customer relationship integrity at all levels, including R&D, sales & support, and senior level management Complementary Redknee functionality offered as a cloud-based solution to augment existing NSN billing capabilities Desire by Redknee to maintain and expand the NSN strategic partner alignment, to build an extended ecosystem beyond Accenture, Microsoft, and Tech Mahindra. Redknee Plans after the Acquisition Becomes Final While business plans often change, parts of any company s business remain steadfast. Redknee explained to Stratecast that it has never lost a convergent billing customer in its company history. It attributes this success to listening to its customers and making sure that the company delivers on its customer promises. Following the acquisition, Redknee believes it will be able to continue its customer satisfaction success, tied to the following business focus areas: Create high value for each customer investing in the new company s billing solution capabilities, by specifically listening to customer needs and delivering on those needs Encourage customer interaction through management team visits, to bring to light new product functionality needs, and to address critical business operations requirements By retaining the entire NSN billing solution sales, support and management teams, build on the existing customer base by capitalizing on their relationships with key customers Focus on reoccurring revenue, which will include full SaaS offerings and not just change request streams. This strategy will be critical for providing future on-premises and cloud-based functionality. By retaining all R&D teams in all locations, accelerate new product development, solution integration, and support for changing market requirements Stratecast believes that, as with any acquisition, there will be challenges. It is apparent that NSN was more interested in the best fit of its billing customer needs to the acquiring company than it was in obtaining the highest transaction value for the sale of its billing assets. While the short-term value of this deal may not appear to be the most fruitful to NSN s bottom line, the long-term win for NSN comes through its continued ability to work with satisfied customers in support of its mobile broadband strategy. These customers now depend upon the new Redknee to provide them with billing solution functionality, as they continue to work with NSN for their mobile broadband infrastructure needs. Stratecast believes that, as with any acquisition, there will be challenges. It is apparent that NSN was more interested in the best fit of its billing customer needs to the acquiring company than it was in obtaining the highest transaction value for the sale of its billing assets. While the short-term value of this deal may not appear to be the most fruitful to NSN s bottom line, the long-term win for NSN comes through its continued ability to work with satisfied customers in support of its mobile broadband strategy. These customers now depend upon the new Redknee to provide them with billing solution functionality, as they continue to work with NSN for their mobile broadband infrastructure needs. OSSCS 14-01, January 2013 Stratecast Frost & Sullivan, 2013 Page 10

11 Stratecast The Last Word With major updates, improvements, and changes in broadband network technology; smart devices; regulations; and convergence with other industries; the focus of business today is no longer about just network connectivity. Redknee has recognized this change; and, with the assets it will gain from NSN, will focus its attention to better enabling its customers customer experience realignment. Realignment, in this case, meaning much more than just working to improve internal business processes and systems tuned to the same business model that has moved the communications industry for well over 100 years. It is now about: Enhancing the end-customer experience with real-time pricing offers, promotions, and discounts Driving new revenue by monetizing innovative services that can be applied to not just consumers or small businesses, but also to the unique needs of enterprise customers seeking to add mobility services to the goods and services they provide to their customers Making the smart device experience a positive event for a CSP s customers, which are quickly becoming engaged at multiple levels, including enterprise use of machine-to-machine solutions and business-to-business (B2B) models Helping CSPs better support customer opportunities through real-time understanding of customer usage beyond just network capacity Stratecast believes Redknee will be well positioned to address each of these rising business challenges. With Redknee s new leadership role in the industry, by revenue for most of the key billing functions, including mediation and policy-enabled rating & charging the company should continue as a major player in the real-time customer enablement process. This is critical, given that the new Redknee s service provider customers are facing challenges from external market drivers, the needs of their customers, and continued pressure to satisfy internal business requirements. Karl M. Whitelock Director Global OSS BSS Strategy Stratecast Frost & Sullivan kwhitelock@stratecast.com Troy M. Morley Industry Analyst OSS BSS Global Competitive Strategies Stratecast Frost & Sullivan tmorley@stratecast.com OSSCS 14-01, January 2013 Stratecast Frost & Sullivan, 2013 Page 11

12 About Stratecast Stratecast collaborates with our clients to reach smart business decisions in the rapidly evolving and hypercompetitive Information and Communications Technology markets. Leveraging a mix of action-oriented subscription research and customized consulting engagements, Stratecast delivers knowledge and perspective that is only attainable through years of real-world experience in an industry where customers are collaborators; today s partners are tomorrow s competitors; and agility and innovation are essential elements for success. Contact your Stratecast Account Executive to engage our experience to assist you in attaining your growth objectives. About Frost & Sullivan Frost & Sullivan, the Growth Partnership Company, partners with clients to accelerate their growth. The company's TEAM Research, Growth Consulting, and Growth Team Membership empower clients to create a growth-focused culture that generates, evaluates, and implements effective growth strategies. Frost & Sullivan employs over 50 years of experience in partnering with Global 1000 companies, emerging businesses, and the investment community from more than 40 offices on six continents. For more information about Frost & Sullivan s Growth Partnership Services, visit CONTACT US OSSCS 14-01, January 2013 Stratecast Frost & Sullivan, 2013 Page 12 For more information, visit dial , or inquiries@stratecast.com.