Latest consolidation keeps OSS on flatline

OSS Observer partner and founder Patrick Kelly had one word to describe the impact on software vendors of the AT&T acquisition of BellSouth: paralysis. However, not everyone will suffer the same symptoms.

Before sounding the alarm that the sky is falling, it's not as if vendors of operations support system (OSS) software have been hit with a surprise and must scurry to examine their strategies. After all, everyone saw more consolidation coming.

When OSS Observer made its market forecasts last year, it “baked in the assumption that there would be further consolidation,” Kelly said. Consolidation was already under way then, and the firm expects to see even further consolidation, particularly in the European mobile market and the U.S. cable market.

“It's not like this deal happened, and we had to ratchet down our forecasts,” Kelly said. “That's why there is a fairly modest 8% overall growth rate expected.”

But things will get a little tougher for the smaller OSS players and those caught in the middle of the pending BellSouth acquisition.

“Anyone who was trying to get some business out of BellSouth is going to be paralyzed pretty much for the next year, if not longer,” Kelly said. “The same thing happened with Cingular and AT&T Wireless and with Sprint and Nextel. Any decision the company made prior to getting bought will be put on hold.”

That could be bad news for the suppliers already in with BellSouth and good news for those supplying the new AT&T, which could see more business as a result. There also will be some business for the small niche providers, Kelly said. “They're not locked out, but the guys with the most to gain are the large incumbent suppliers.”

AT&T is promising big operational expense savings, about $18 billion by 2010, so in addition to laying off workers and closing redundant operations centers, it will have to invest in some back-office transformation.

There are 250 suppliers of operations software to the service provider market; however, 17 of them control half the market-share. “That makes it very difficult for the smaller players to win new business, and it creates an opportunity for bigger players to lock up the big deals,” Kelly said.