Advertise with us
[January 19, 2006]
Amdocs rides high
(Israel Business Arena Via Thomson Dialog NewsEdge)A year of nervous tension at Israeli billing giant Amdocs (NYSE: DOX) came to a happy end on Tuesday with an announcement by US communications giant Sprint Nextel Corporation (NYSE: S). The US company said it had chosen Amdocs as its sole billing provider for its wireless network. Amdocs will supply its billing and customer relations management (CRM) platform to over 46.5 million of Sprint Nextel's wireless subscribers under an eight-year contract.
Winning this contract makes Amdocs the undisputed leader of the US billing market. With Sprint Nextel, AT&T (NYSE: T) (merged with SBC Communications), and Cingular Wireless (merged with AT&T Wireless) in its pocket, Amdocs now has an enormous advantage over its competitors. This fact is also expected to affect the Asia Pacific region. The only territory in the US communications market in which Amdocs has not prevailed so far is Verizon Communications (NYSE: VZ).
The announcement by Sprint Nextel did not specify the size of the contract, but it can be assumed that it will amount to several hundred million dollars. At the same time, there are a number of factors that could significantly affect the contract's size.
The first question is whether the contract is for outsourcing, or whether it is a billing system supply contract in the standard format of a software license sale, professional services, and customization. Billing and CRM contracts that last for eight years are usually outsourcing contracts, but not always. Sprint Nextel's announcement was not clear on this point.
Amdocs's original contract with Nextel (before the merger with Sprint) was an outsourcing contract amounting to $200-220 million a year. Sprint, on the other hand, up until now bought its systems from Convergys for tens of millions of dollars a year under the software license sale and services format.
The size of ordinary contracts is by nature smaller than that of outsourcing contracts. The former can vary from tens of millions to a few hundred million dollars, depending on the type of customers, the services provided by the operator, and the extent of services and customization that the system's environment requires.
One of the key questions therefore involves the new contract's format: whether Amdocs will continue supplying systems to Nextel through outsourcing, but will supply systems to Sprint through the conventional format, or whether a new contract will be signed, with new terms. If a new contract is signed, the question is whether it will be an outsourcing contract that will include all the subscribers of the merged Sprint Nextel company, or a contract on the standard sale-of-license and services format.
Another factor is the type of subscribers. Most of Nextel's subscribers are business customers, while most of Sprint's are private. This distinction is very important, because business subscribers use more sophisticated services than private subscribers, and pay much higher prices for the services they receive.
Therefore, although Nextel has 12-15 million subscribers, while Sprint has over 33 million, it cannot be ruled out that Amdocs will charge more for the billing system serving Nextel's subscribers than it will for the billing systems serving Sprint's.
For these reasons, any estimate of the new contract's size will necessarily be very crude. Under this assumption, it can be said that if Amdocs continues supplying systems for Nextel's subscribers through outsourcing, while at the same time selling its system for Sprint's subscribers according to the standard format, the contract is likely to total $250-300 million annually for eight years.
On the other hand, if Amdocs supplies systems solely according to the licenses sale and services format, without an outsourcing contract, the contract's size could vary from tens of millions to at most $100-200 million. It should be emphasized that this is the least likely case. If Amdocs sells all its systems to Sprint Nextel through outsourcing, then the size of the contract is likely to reach $300-500 million. All of these estimates are very crude.
The past year was not an easy one for Amdocs. While Nextel was its very long-standing customer, Amdocs's relationship with Sprint followed a roller coaster course.
When Sprint and Nextel announced their merger, they said that they intended to work with a single supplier in each area. The meaning was clear -- networks would be consolidated, and the merged Sprint Nextel would buy its billing systems from a single supplier.
Announcement of the merger put Amdocs on red alert. Nextel, considered the fifth largest wireless operator in the US before the wave of mega-mergers hit the industry, accounted for 15% of Amdocs's annual revenue.
Starting on the day the merger was announced, Amdocs began preparing for the struggle on all fronts. Its first step was a series of marathon meetings with analysts by president and CEO Dov Baharav, who explained Amdocs's advantages as a billing supplier. In marketing, Amdocs's management made great efforts, particularly with the leaders of Nextel. At the same time, the billing suppliers waged psychological warfare, mostly through press releases and announcement of technologies and technological cooperation.
Published by Globes [online] - www.globes.co.il - on January 19, 2006
Back To NFVZone's Homepage