Hosted OSS is DOA

It sure seemed like a good idea at the time. With emerging competitive carriers needing a quick and inexpensive way to get their businesses started, the idea of outsourcing time-consuming, resource-intensive and expensive operations functions to telecom experts who promised to virtually eliminate upfront capital costs was a can't-miss opportunity for both parties.

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But just as purveyors of the hosted OSS model arrived at the CLEC dinner, dessert was cleared from the table. Carriers sat agape as the veritable feast ended in veridical famine. And what started as a celebration of opportunity and innovation ended with the handful of OSS start-ups dying alongside the CLECs they were born to serve.

The survivors, if the state many of these companies are in can be called living, have taken what nourishment they could find in the cupboards of bankruptcy court or have sustained themselves by bloodletting their organizations and restructuring.

If, and when, they re-emerge into the market, as most say they will, their second go-around may be less ambitious. And it may address new markets altogether. But whether this business model survives a second chance remains to be seen. Experts say it was doomed from the start because it offers a generic solution to customers requiring specialization. Some CLECs say they would give it a second shot, while others say “never again.” And at least one vendor is proving that its version of the model works today.

Table 1 The status of outsourced OSS start-ups
Company	Business model	Status	Customers
Synchronoss Technologies	ActivationNow platform provides function-specific applications for the Tier 1 market	In business	AT&T, Celox, Quantitude, Concert, WorldCom
NetworkOSS	BusinessNow application suite provides pre-integrated best-of-breed OSSs in a hosted network environment	In business but restructuring	airBand Communications, claims several unannounced customers
Coreon	Full-service operations provider, including NOC services	*Out of business	None
New Global Telecom	Outsourced network and switch operations and management	Filed for Chapter 11 on May 25, restructuring	Not available due to nondisclosure agreements
* Coreon may be in the process of restructuring, but the company was unavailable for comment Source: Companies

Coreon, NetworkOSS, New Global Telecom and Synchronoss Technologies all came to market within the last year or so with slightly different models of outsourced OSS solutions. Only Synchronoss has made a go of it. The rest have called it quits or are restructuring (Table 1 above).

Coreon closed shop only months after raising a quick $73 million in February. Unfortunately, it did so after buttressing the hopes of burgeoning Illinois-based CLECs Vertex Broadband and Tallgrass Communications with promises of delivering the back-office systems and operational expertise they needed to compete in the telecom market (Table 2 below).

Table 2 Operator service provider funding
Company	Funding	Date Funded	VC firms
Synchronoss	$35 million	May	ABS Ventures, Rosewood Venture Group, Ascent Venture Partners, C.E. Unterberg, Towbin, Adams Street Partners, Liberty Venture LLC
Coreon	$73 million	February	Bowman Capital, Kleiner Perkins Caufield & Byers, Telesoft Partners, KMF Partners, Comdisco, Western Technology, Imperial Ventures, Sands Brothers, Cabletron
New Global Telecom	$33.6 million	Unavailable	Peak Global Telecommunications Investments, Palio Portfolio, Caravelle Investment Fund, SBIC Partners II, Concert
Network OSS	$13 million	July 2000	Sevin Rosen Funds, Crescendo Ventures, Datamat SpA
Source: Companies

Vertex actually ceased doing business as a competitive provider just before Coreon closed its doors. It now provides non-DSL high-speed bandwidth in partnership with Ameritech, said Greg Nischke, chief operating officer and president of Vertex.

Vertex had used Coreon for implementation, provisioning, and network monitoring and management. Now the provider has given up on outsourcing and is building its own back-office systems. “When you rely on an outside source for any portion of how you provide products and services and that changes, you have to rethink your original decision to outsource and figure out if you want to do it again,” Nischke said.

Coreon's other customer, Tallgrass, hasn't quite gotten off the ground because its buildout was stalled when Coreon went out of business — a twist of fate that vendors have experienced over the last year as their CLEC customers died. Tallgrass was building its business using Coreon's full suite of OSS products, including order entry, electronic bonding, service provisioning, and activation and network management. “We are now faced with [procuring] our own OSS solutions. We have to get [that] in place before we get our next round of funding,” said Sunil Kripalani, vice president and chief technology officer for Tallgrass.

Coreon, perhaps wisely, pulled the plug on a business plan that addressed a disappearing market. Coreon is rumored to be relaunching, but it may already have done irreparable harm to the idea of outsourcing. Emerging carriers may be reluctant to pin their hopes on a third-party OSS provider after seeing Tallgrass left in the lurch without an OSS months into the process of outsourcing one.

Then again, they may chalk it all up to bad timing and realize everybody has struggled this past year. Such may be the case with Tallgrass. The carrier is still in the market for an OSS. “We're hoping to find an [outsourced] business model, even if it is not as comprehensive as Coreon's was,” Kripalani said.

Kripalani did not rule out doing business with Coreon again if it were to re-emerge. For now, the company is said to be looking at a local OSS provider — possibly Telution. Although Telution's core business is not hosting OSS software, the company is planning a variation on the theme. Telution also happened to pick up some of the departing talent from scaled-back hosted OSS provider NetworkOSS.

NetworkOSS began in February 2000 and quickly built four data centers in Sunnyvale, Calif.; Dallas; New York; and London. Its goal was to be a full-service OSS provider exclusively for CLECs by partnering with various OSS vendors to host a single software platform for each provider from its data centers.

By April of this year, however, NetworkOSS instituted a significant work force reduction and scaled back to one data center. All but one of its public customers — airBand Communications — have gone out of business. The company is now making a play for the enterprise space, following suit with MetaSolv Software, one of its strategic partners.

“We developed a business model that we thought would work,” said Steve Queroli, president and CEO of NetworkOSS. “The problem is if there are no customers there, it doesn't really matter if you have [the right product] because no one is [there] to buy your service.”

However, even if by some miracle the customers returned, outsourced OSS — especially solutions based on the application service provider (ASP) model — still may not be the answer. “OSS is not a generic thing. It's hard to take a generic package like what Coreon and NetworkOSS were offering and use that as a service provider's OSS,” said Scott Donahue, OSS program manager for Stratecast Partners. “Service providers have more specific OSS needs than what an ASP can provide.”

Coreon, NetworkOSS and New Global Telecom, which filed Chapter 11 in May and expects to emerge by the end of the year, were closely modeled after the ASP. Other providers such as Illuminet and Telcordia Technologies have been more successful offering a variety of OSS services on a service bureau basis. And companies such as Convergys have made a living providing outsourced billing.

But if the ASPs hope to survive, they must adapt. “The only way that an OSS ASP would be successful is if it can offer a service provider more business-process focused applications,” Donahue said.

And that's just what the one successful provider in the bunch is doing. Synchronoss decided to forgo the expense of providing network operations center services and steer clear of customer acquisition solutions. Instead, it focused on the business process layer of OSS. Most important, it targeted Tier 1 carriers and those carriers' large enterprise customers.

“From the time the customer says ‘yes’ to the time a circuit is up and built properly is the category-killing process that our platform attacks,” said Stephen Waldis, president and CEO of Synchronoss. “And we only do it for a certain complex set of services.”

The company's hosted ActivationNow platform focuses on the provisioning, activation, tracking and billing of data circuits and services, including frame relay, voice over IP, virtual private network and fixed wireless.

Among its latest Tier 1 customers are AT&T Wireless and AT&T's Digital Broadband service. “The difference between the CLEC and carrier markets is night and day, and the degree of complexity the carriers bring to the table is not something you can just jump into the field overnight and conquer,” Landis said.

In addition to AT&T, Synchronoss has picked up business from several of its leader's ex-employers, including Qwest Communications and WorldCom. As other vendors re-address the market, they may want to take a closer look at Synchronoss and then pray for more time.

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