Billion-dollar baby: Amdocs buys Solect, builds platform for growth

Just five weeks after announcing a new IP division, Amdocs reached an agreement last week to purchase IP billing provider Solect Technology Group for an estimated $1 billion in Amdocs shares.

Solect CEO Paul Atkinson will become president of the new division based in Toronto, and Solect personnel will account for two-thirds of the IP division's 350 people upon the deal's closing, which is expected by the end of April. Amdocs will issue 15.5 million Amdocs shares and options in exchange for Solect's outstanding common stock and will assume outstanding Solect employee stock options.

"This acquisition is not about optimizing our share price for the next month or even year. This is about long-term strategy," said Avi Naor, president and CEO of Amdocs Management.

Acquiring Solect gives Amdocs a range of services, including wireless, wireline, voice, IP and convergent services. Both companies have billing and customer-care platforms, but for now, they will not integrate them into a single solution.

"[Amdocs'] Ensemble will be the main tool to offer solutions to the mid-tier and high-end customer," Naor said. Solect's IAF Horizon will continue to target ISPs, applications service providers and other IP-based providers, and Amdocs will continue to invest in R&D and enhancements for Solect products, Naor said.

The customer bases of both companies complement each other and give each player a presence in new markets. Amdocs has more than 75 customers worldwide, including many incumbent carriers such as Deutsche Telekom, Mannesmann and Japan Telecom. Amdocs gains instant access to Solect's customer base, including Ameritech, AT&T, Broadwing's ZoomTown, BT, GTE and Jato Communications, plus several international carriers.

In addition to existing customer bases, the companies have a combined 50 prospects in their sales pipeline from across the globe and across platforms, Naor said. "We feel this acquisition will enable us to increase our hit rate and get more customers out of our prospect list than either company could have done separately."

The companies worked together on previous projects as partners and have some joint customers, such as BT. "It's not something we saw coming, but as we got to know Amdocs...we began to realize this was a tremendous opportunity to build a platform for growth that is really going to change the way the communications infrastructure operates," Atkinson said.

Amdocs officials cited Solect's management and industry expertise, the market potential of IP and the need to improve its time to market as drivers for the acquisition.

"With this acquisition - regarding revenues we expect to be generated out of IP - we more than tripled our expectations for 2000," Naor said.

As the industry migrates to an IP-based infrastructure, momentum in the IP billing space will continue. During the last year, partnerships have developed at a furious pace between traditional billing and customer care companies and the emerging companies that provide mediation and quality of service capabilities in the IP space.

"We recognized a while ago that we needed to partner with a major player on the convergent marketplace," Atkinson said.

Convergys is another company entrenched in the major markets for billing and customer care that recognized early the need to move quickly into IP. Convergys acquired Technology Applications Inc. last June in a move similar in strategy to the Amdocs deal. The purchase price was not disclosed.

"In TAI, we found an emerging company with knowledge in the ISP space and IP technology, a customer base and partnerships - all the things you look for in an acquisition," said Randy Mysliviec, senior vice president of Convergys. "We got TAI at a time that has given us substantial competitive advantage. We've had nine months of having them in our fold."

During the next three years, Convergys will invest more than $100 million in IP-related activities, including R&D and mergers and acquisitions, Mysliviec said. In fact, Convergys cited the TAI acquisition as key to winning a contract with Level 3 Communications earlier this year.