Telcordia Is Up for Sale- who will bid for the company?

A History Lesson

As part of the divestiture of the Bell System in 1983, many AT&T Bells Labs engineers were transfered to a new company that was to be the research labs for the seven spun-off RBOCs.  Named Bell Communications Research- or Bellcore for short- the organization was formed January 1,1984.  Over the next several years, Bellcore was very effective in helping their parent companies evaluate, standardize and arcitect new telecommunications technologies, e.g. ISDN, SMDS,  Frame Relay, Software Defined Network, Intelligent Network, etc.  Bellcore’s standards for TL1 – the language of telco network management, and SONET (Synchronous Optical Network Transport) were implemented by every equipment company in those market segments.

But as the RBOCs put less of an emphasis on research and developement there was less need for Bellcore.  So the company was sold to Science Applications International Corporation (SAIC) in 1995.  What SAIC was getting, according to Bellcore’s CEO at the time, was a $650 million-a-year software business and a $350 million-a-year professional services business. The approval process for the deal was arduous, passing muster with seven owners and nine state regulatory agencies, so that the sale was not completed until November 1997.

When SAIC acquired Telcordia,  it was a government contractor, primarily involved in defense, that was generating more than $2.1 billion in annual revenues. Telcordia’s expertise in telecommunications presented SAIC with new areas for growth in the private sector. The company was renamed Telcordia in 1999 to break any claims to its former owners. 

According to Wikipedia, “Telcordia has pioneered many of the telecommunications services used today, including Caller ID, Call Waiting, Mobile number portability and Toll-free telephone number (800) service. Telcordia’s expertise lies in managing large, complex projects across the operations and communications spectrum.”

In 2000, Telcordia was still involved with generic requirements and U.S. standards for SONET (as well as the emerging Optical Transport Network or OTN), but they started to focus more on progressing the back end network management software -often referred to as Operations Support Systems (OSSs) and Billing Support Systems (BSSs) – that they had developed for the RBOCs.  The objective was to sell OSS and BSSs to telcos all over the world. 

For reasons never publicly disclosed, SAI sold Tecordia to Providence Equity Partners and Warburg Pincus in November 2004 for for $1.35 billion.  Those two privaty equity firms hold equal stakes in the company.  

According to the January 14. 2011 Wall Street Journal, those firms have now put Telcordia up for sale again.

Fast Forward to the Present: Is Telcordia worth $1.5B asking price?

Susana Schwartz of Connected Planet on-line wrote:

“On the one hand, Telcordia remains a very powerful player in service assurance and fulfillment, thanks to its relationships with AT&T, Qwest, Verizon and Level 3–all of which provide it with steady, predictable revenues (to the tune of about US$300 million/year).

And it has been expanding into new territory –literal and figurative. For one, Telcordia has definitely tried to shift focus to emerging markets like Latin America and India (about 20%of it business is now international). And, it has reached into some new sectors like government and automotive. Surely someone might find value in the fact Telecordia has amassed an enormous amount of intellectual property and expertise in the area of legacy circuit-switched networks.”

The previously referemced WSJ article says that  Telcordia “has a line of next-generation products centered on Internet-protocol-based communications that is expected to bring the lion’s share of revenue in coming years.”  Yet it remains to be seen if that offering will be competitive with IP based management systems being developed by Cisco Systems.

It will be quite interesting to see which companies bid for Telcordia.  It could be to its back end network management competitors (like Oracle, Amdocs, HP, IBM),  a company trying to get into that marketplace, or another private-equity firm.  The referenced WSJ article notes “Carlyle Group bought Syniverse Holdings Inc. another provider of mobile network technology, for $2.6 billion—a multiple of about 11 times Ebitda, a standard measure used to calculate deal value. Carlyle also bought Commscope, a maker of fiber-optic cables, for $3.9 billion.”  Read more:

So it seems to us that Telcordia should fetch at least the $1.5B asking price, but we are not aware of any bids at this time.  The key question is whether they can compete in IP (Internet Protocol- not Intellectual Property) back end network management systems with the many new players, e.g. Cisco, in that marketplace.