The Man Who Came to Dinner

The main difference between being a vendor and being a partner is proximity. The closer you are to the decision maker, the more likely that person will view you as a trusted ally with valuable advice to offer. If you're not sitting at the same table, then you're just another vendor.

At least, that's the theory on which Rick Darnaby is operating. As CEO of Santa Barbara, Calif.-based Somera Communications, a provider of new and refurbished network equipment and asset inventory management systems, Darnaby and his team have been trying to ingratiate themselves with executives of major wireless companies in hopes of getting carriers to outsource management of their underused network assets, such as legacy voice switches that have been replaced in data upgrades.

Some of Somera's services are designed to help carriers take stock of what they have and get the most from their deployed assets. However, in an industry still looking to replace cost with cash wherever possible, Somera also pledges to help carriers turn its legacy equipment and other idle assets into pocket money. Carriers can wash their hands of the details by letting Somera take their unwanted assets into a complex worldwide marketplace of rival operators for whom their legacy equipment is as good as new.

But getting that outsourcing directive from carriers is never easy. In every situation, Somera is the new player trying to work its way into a carrier organization and advise decision makers about assets that previously were deployed or maintained by much larger and better-known infrastructure vendors. This summer, Darnaby was able to report progress in that uphill battle, as Somera signed a Master Supplier Agreement with Cingular Wireless. Darnaby said the agreement gives Somera “a seat at the table” as Cingular executives make strategic decisions about what to do with the legacy TDMA network facilities it is gradually replacing with GSM/GPRS gear.

Darnaby said his company hopes to help Cingular fine-tune recently deployed equipment for optimum capacity, as well as remove and sell some of its TDMA equipment to other carriers. “We can take that equipment out for them, and we can sell it into other networks in markets such as Latin America that have a call for TDMA,” said Darnaby.

Though Somera had an ongoing partnership with Cingular, it was a much more limited relationship in which Somera responded to asset management needs on a situational basis. But Darnaby thinks Cingular and other wireless carriers need to think as strategically about managing deployed assets and removing underused ones as they do about buying and installing new gear.

“A lot of these carriers have reduced the resources and staffing that had been devoted to maintaining excess inventory,” he said. “We have people who know the equipment physically, we know how to value it for sale and we know the buyers.”

While Somera has been fairly successful for the last several years purely by removing old equipment for carriers, refurbishing the gear and then selling it used on the open market, the industry downturn has hit the small company as hard as it has anyone else. Somera had been trying to boost its sales of new equipment into carriers, but it saw the rapidly dwindling contracts go to their existing vendors.

When a string of quarterly losses forced Somera into a corporate restructuring program last year, Darnaby looked for ways to strengthen and build on its dealings with the wireless industry's biggest carriers.

“We're starting to see the results of our effort to sit down with key carrier executives and become real strategic partners with them,” Darnaby said. “We're getting closer to the decision makers.”

In addition to its agreement with Cingular, Somera has budding partnerships with AT&T Wireless, Dobson Communications and Verizon Wireless. While that kind of progress is good news, Darnaby said Somera still needs to see these carriers follow through on the advice Somera is giving them — the company still makes most of its money when its strategic influence results in hands-on execution.

“We need to see them follow through on asset management projects,” he said. “Carriers are still showing a reticence to spend the money [to pay Somera to remove and sell their assets, or reconfigure equipment for new purposes]. Most of the limited new spending they're doing is going to their existing infrastructure vendors.”

Darnaby and his team will keep whispering to the decision makers until they do follow through with those projects, but Somera could really use the additional revenue as soon as possible. Steve Cordial, senior vice president and chief financial officer at Somera, said during the company's second-quarter earnings call in late July, it reported a $2.2 million loss for the quarter, with revenues relatively flat compared with the first quarter of 2003.

“Our revenue continues to come under pressure of existing market conditions,” Cordial said, explaining that most of the company's earnings the last several quarters have come from decommissioning old equipment for carriers, not from more lucrative equipment sales.

Steve Levy, an analyst with Lehman Bros. who follows Somera, said Darnaby's efforts to strengthen ties with carrier executives are on the right track. “It's deepening and institutionalizing of their prior relationships with carriers,” Levy said. “It's an effort to focus more on services and less on equipment.”

Still, Levy agreed with Darnaby that Somera needs to see carriers follow through with some spending. “Carriers words are encouraging right now, but more so than their actions,” Levy said. “They are talking the talk, but not walking the walk yet.”

Meanwhile, Somera's special expertise in asset management, an area that has long been ignored by larger infrastructure vendors, is now coming under competitive fire as vendors such as Lucent Technologies and Ericsson make asset management an element of their new strategies to supply carriers with more professional services. For its part, Somera sees itself as a more impartial third party that can better advise carriers than the vendors that sold them the equipment.

“Carriers could be concerned that we'll use asset management as just another way to sell them more equipment,” said Eric Anderson, vice president of practice development, markets and strategy at Ericsson. “But if that was our game, we wouldn't be in the services business for very long.”

Darnaby said Somera is looking to new partnerships with other vendors to give it more artillery for those competitive battles. The company recently cultivated a partnership with Accenture; the major consulting agency has several large carrier clients for its professional services, but will now look to subcontract the asset management portion of these programs to Somera.

In addition, Somera aligned with Brightstar, a Miami-based inventory management firm and systems integrator that works on the network deployment projects of many major wireless carriers in Latin America.

“Brightstar will strengthen our ties to that region and to many of the companies interested in buying voice equipment outmoded by U.S. carriers,” Darnaby said.

Still, it's clear that investors and analysts who dialed into Somera's second-quarter earnings call are looking already for the results of Somera's new partnerships and closer relationships with carriers. The first question asked was when the new agreement with Cingular will boost Somera's bottom line.

“We have the relationships, and we've seen a little revenue from them already,” Darnaby said. “We hope to start seeing more revenue from them later this year.”