TELCORDIA ANNOUNCES CHANGES

Telcordia Technologies held its first public outing last week since the close of its acquisition by Warburg Pincus and Providence Equity Partners. The transformation-focused event, which also was its third press and analyst update since CEO Matt Desch took over the company and it launched its Elementive product campaign, identified shifts both inside and outside of Telcordia.

The conference to introduce the newly semi-independent Telcordia, ironically was kicked off by Mary Turney, president of operations and network solutions and keeper of all things legacy for Telcordia. Turney set the theme by talking about change.

“We are using change to have a positive impact on business,” she said.

Desch took the concept a little further by talking about transformation. “Change is just change: 50% good and 50% bad. But transformation is good change,” he said.

Telcordia's transformation was initially sparked by Desch taking over the company two and a half years ago and setting it on a new product-based direction. Most recently, it was accelerated by Warburg Pincus and Providence, which through acquisition freed Telcordia from otherwise preoccupied parent company SAIC.

The degree to which Telcordia has transformed internally is a favorite topic of debate among analysts and other onlookers, but a quick scan of its major decision-makers shows that there is a lot of new blood.

So far, the change has been strategic. Desch said that while the company's Elementive product portfolio has grown, overall revenue has not, mainly due to the decline in RBOC revenue.

“We haven't made up the difference in new business yet,” Desch said.

However, judging from the guest speakers and their outlook on achieving true transformation in their own companies, Telcordia's revenue picture is likely to change. Or, per Desch's definition, it is likely to transform.

Representatives from Verizon, Movida, MCI Europe, Broadview Networks, Telecom Argentina and Telcordia's newest and perhaps most important partner, Accenture, threw their support behind the event, if not all necessarily outright to Telcordia.

Verizon's presence was symbolic in that the carrier is probably the most staunchly go-it-alone RBOC today. But, Fari Ebrahimi, senior vice president of retail customer management and billing systems, said the company cannot do everything itself.

“There is a lot of knowledge outside the company, and there has to be partnerships,” he said. “We have to play a major role [in that partnership.]”

Desch has made good on his commitment to make Telcordia more partner-friendly itself, citing relationships with IBM and Accenture. Dan Elron, global telecom managing partner at Accenture who participated in panel discussions, said his company would not have been present under the previous ownership.

If there is to be change in the revenue stream, it will have to come with the help of new partners like Accenture as well as new products and new geographies. Desch is counting on wireless to lead the way. Wireless now accounts for 12% to 15% of Telcordia's revenue while revenue from non-North American customers is growing faster than the domestic base. Non-North American revenue accounts for 10% of revenue, up from 5% two years ago. And showing progress on making Telcordia a product company, Desch said 70% of revenue is now from software versus 30% for services.

Another way for Telcordia to grow is via acquisition. Despite analyst predictions that Telcordia will make at least two acquisitions this year under its new ownership, Desch says he is being patient.

“The first six months I have to show I can succeed on an individual basis before making acquisitions. Maybe it could happen in the second six,” Desch said. “But you don't always have to acquire right away. You can partner for a while and get to know someone and work together first.”

You also can work toward an IPO. “Our next business challenge is to de-leverage. One way to do that is through an IPO. And we are a natural IPO candidate,” Desch said.

He added that going public would not be about getting rich but about paying back investors.

If Desch and company said it once during the conference, they said it a thousand times: We have a lot of really smart people here. Larry Bettino, managing director at Warburg Pincus, one of Telcordia's two new owners, listed Telcordia's “unparalleled experience” as the reason for buying the company. But Ken Kharbanda, corporate vice president of business development and another relative newcomer to Telcordia from the venture capital arena, identified the issue related to all that talent, which Telcordia has been trying to overcome.

“We have tremendous resources here, but we didn't have a way of systematically turning [our talent] and technology into products,” he said.

Kharbanda oversees an internal group called the Growth Initiatives Forum that is responsible for commercializing new products and technology and for M&A activity. Through the group, Telcordia is working on new solutions around RFID, IP routing, hosted solutions and data migration.

The hosted solutions group within Telcordia made fast work of this initiative, scoring a deal with Movida to host operations support system solutions for its mobile virtual network operator business model.

“In June of last year, we got our funding for the unit and had our first customer 10 months later,” said Doug Patterson, vice president and general manager of Telcordia's hosted solutions group.

Desch also expects that carriers will be making some critical decisions in 2005 in order to meet their transformational goals two to three years down the road. “And we want to be part of it,” he said.