WeDo has issued a positive press release about their 2011 financial year; see here. The Portuguese vendors of business assurance software reported annual revenues of USD64.3M and EBITDA of USD7.8M. Comparison to the 2010 numbers showed revenues were down 1.3%, whilst EBITDA was up by over 4%. Although WeDo said 2011 had been ‘a challenging year’, confidence in the future was emphasized by taking new sales orders worth USD72.3M and having an order backlog worth over USD43M.

The company was described as enjoying ‘growing profitability’ but no mention was made of any actual profits. Attempts to cross-check the press release to the accounts of the parent Sonae Group proved futile; the group accounts lacked sufficient detail. However, the information in the press release appears consistent with WeDo’s reported performance in previous years and with announcements it made during 2011.

To WeDo’s great credit, they did not shy away from the big issue of cut-throat competition and the need for market consolidation. They said:

the market endured very aggressive competition based on pricing which is likely to drive an important reshuffle in 2012, impacting some of the key players in the industry

The company went on to emphasize its stability during turbulent times, referring to the fact it has a single shareholder – Sonae Group – and highlighting that the company would engage in continued innovation and development ‘without disruption’. The implication is that WeDo sees potential in appealing to potential customers who are worried about the viability of rival vendors.

WeDo also reiterated established aspects of its business strategy, mentioning overseas sales and non-telecom sales. 67.4% of revenue was described as ‘international’, meaning the firm is becoming less reliant on revenues from customers in Portugal. Meanwhile, two sales came from outside the telecoms sector: a new financial customer in Portugal and a new retail customer in Brazil.

This month Ofcom, the UK’s communications regulator, published an action plan to tackle bill shock – the modern phenomenon of customers receiving phone bills much higher than they expected. Although Ofcom’s news release mentions taking action, the news is that there will not, in fact, be any new action taken.

After investigating the causes of bill shock, Ofcom concluded what we knew all along. Bill shock is mostly caused by mobile roaming, especially when using data services. There are some, but fewer instances of bill shock relating to stolen phones and customers exceeding the minutes in their allowances. As mobile roaming stands out as most needing a measured response, Ofcom has been left in the wake of the EU. The EU Roaming Regulation has already tackled the issue of roaming charges within Europe, and the EU is considering a plan to extend the regulation’s safeguards to protect European customers whilst roaming outside of the EU. In short, the EU regulation demands there are warnings as the bill climbs, and an automatic cut-off if the customer’s bill reaches 50 Euros. If applied to all roaming, this would conclusively tackle the problem of roaming bill shock for subscribers from EU countries. Hence Ofcom’s current action plan is mostly to wait to see if the EU implements its proposed action plan. If the EU does not do so, there is a vaguely stated possibility that Ofcom could go solo and bring forward similar regulation to protect UK phone users. However, the likelier outcome is that they would just maintain their existing approach of cajoling CSPs to voluntarily introduce and improve alarms and caps.

The EU will consider the proposal to extend its regulation in April 2012. Whilst politics drives again, the political issues may be more acute than usual. On the one hand, the EU wants to show it delivers benefits to its citizens – even whilst the economies are grinding them down. On the other hand, EU efforts to ‘go global’ with the scope of carbon taxing international airlines have more than a little resistance. Burdening operators for the responsibility for worldwide roaming charges might be treated as regulatory overreach at a time when less government interference is thought to be important. Either way, the EU’s actions are likely to establish an important precedent for how bill shock is tackled globally.

Why are we here? What is the good life? How do we determine our purpose, and judge if we have been true to it? People have asked themselves these questions all through the ages. Existentialism and revenue assurance may not seem like an ideal crossover topic for a blog, but there are times when everyone has to ask why they do the things they do, and the running of talkRA is no exception. So please indulge the plethora of rhetorical questions as I review the site’s purpose and search for better ways to achieve it – and invite you to keep us pointed in the right direction.

Looking at the mission statement, I feel that talkRA has satisfied the old advertising maxim: it does exactly what it says on the tin. As the mission statement is unchanged since talkRA launched in August 2008, I was surprised by its continued accuracy. Apart from broadening the scope to cover risk management and business assurance, the mission statement still captures the essence of the site:

talkRA is dedicated to promoting the development of the practice of revenue assurance, fraud management, revenue management and business intelligence in telecommunications service providers and other industries…

It provides a platform for thought leaders, allowing them to communicate and exchange ideas without imposing any limitations based on employment or affiliations.

The result has been a varied mix of news, insight, comment and irreverent humour. Do you agree? I think you probably do, based on the numbers of visitors we receive. This February we set a new record for unique visitors in a single month. That can only be the product of ‘word of mouth’ recommendation by you, the readers, for which I thank you. It gives me confidence that, even whilst the industry has its ups and downs, people keep finding this website is a source of news and views they will not find elsewhere.

But can we do better? I hope so, and we should try. When I first spoke to Dan Baker, specialist researcher, we discussed talkRA’s role as a non-aligned hub, used to share and promote information of interest to the RA community. With the perspective of a man who has made a career out of analysing markets, Dan highlighted how this third way – neither a promotional vehicle for vendors nor a organization that sets standards for employees – filled a gap not satisfied elsewhere. talkRA can accommodate those who might otherwise struggle to find a platform, whether they are freelance consultants, opinionated iconoclasts, academics, niche experts, or those just wanting the space to muse about their work and maybe share a joke. At the same time, we welcome the constructive input of vendors and other organizations, and do not censor. There are several ways to deliver balance, and the talkRA route is through free speech and debate. Even ‘opponents’ are welcome here, but sadly they prefer not to venture from their personal (and presidential) fiefdoms.

The philosophy of non-alignment can result in curious bedfellows. There is no objection to information about a vendor’s product being presented alongside a call for open source developers, and the bloggers write as customers as well as providers of communications services. However, even talkRA could do more to present more varied fact and opinion, and to offer more gateways to useful information. To pursue this goal, I want to re-emphasize talkRA’s role as an inclusive hub. An aspect of this is seeking partnerships that further our mission whilst acknowledging commercial offerings that may be of interest to readers. So when Dan Baker completed his recent and authoritative report into the current state of business assurance, it was natural to bring his offer here, to talkRA, rather than just pointing readers to the website of Dan’s business. The result is a minisite within talkRA, dedicated to the new report.

Another way for talkRA to achieve more is to encourage the flow of information about what various RA tools actually do. Nobody wants to see talkRA descend into a competition to see who can make the most exaggerated marketing claim. However, it strikes me that we rarely discuss how RA products differ. Vendors will naturally be reluctant to present a point-by-point comparison. Nobody has the time or opportunity to do extensive and impartial reviews for free. Only two kinds of people conduct meaningful reviews: people looking to buy a solution for their telco’s specific needs, or professional researchers like Dan Baker. But we could allow vendors more space to state positive facts about the new features they have added to differentiate and augment their products. In other words, we will not make room for corny shtick saying you should buy a tool because ‘operators estimate they leak 2, 5, 10 or even 20% of revenues’, but I see no problem in having a vendor describe some new software they have just released. Then the vendor can be turned over to you… and you can publicly ask any and every difficult question you want, and further judge the vendor by the quality of their answer.

So, to recap, what is talkRA for? It exists to promote the fields of revenue assurance, business assurance, and all the business disciplines that relate to them now or which will relate to them in future. Have we done this? I think so, and I hope the growing readership justifies my confidence. Can we do better? Sure! Nothing is perfect. We work in business, and whilst talkRA seeks to avoid bias, it can accommodate more unbiased commercial information, alongside other content. But, as ever, this is open for debate. If you disagree, then let us know. It is better to have honest transparent feedback than see the consequences of a bad decision only through falling visitor numbers. Our mission is to support as broad a community of interest as possible; being open and non-aligned is a way to optimize the breadth of that community. Ultimately that means trusting the community to give its guidance.

There has been a flurry of news from Subex, the Indian RA giant, since they released version 5 of their ROC software. Within the string of positives and negatives, the themes remain largely unchanged from what we have long known about Subex. On one hand, Subex continues to announce new deals with customers. On the other hand, the overhang from their Foreign Currency Convertible Bonds (FCCBs) continues to plague them. Subex has successfully renegotiated their finances before, so there is reason for optimism. However, the context for analysing Subex’s performance has been altered by adverse news about some of their rivals. Recent months have seen the leaking of bad news about two Indian vendors, first Teleonto, then Connectiva. Whilst Subex is much larger and more mature, the saying ‘misery loves company’ might explain some of the rumours currently circulating the industry. Subex has taken on former Connectiva employees, but there are signs of a negative and twitchy mood spreading amongst industry insiders. In such an environment, loose talk about cashflow problems or potential takeovers can spread like wildfire, and Subex’s FCCB difficulties will inevitably fan the flames. But rumours are rumours and should not be repeated as fact. Here, then, is a brief summary of the recent Subex news.

Positives

Subex has made three sales announcements within the space of two weeks:

• An unnamed African group has acquired Subex’s fraud management solution;
• Avea, the Turkish mobile CSP, has bought Subex’s RA solution; and
• Both the RA and fraud solutions have been purchased by an unnamed Middle Eastern operator.

The exact value of the deals is unknown, but two of them are described as being ‘multi-million’. These press releases follow a familiar pattern from Subex, which has kept on announcing new contracts even whilst there has been a decline in similar announcements from some of its rivals.

Negatives

The maturity of Subex’s existing FCCB’s were extended to July 9th; see here. Subex has faced strong headwinds from currency and stock markets, creating a double-whammy of a share price too low to justify the conversion of FCCBs into equity, and inadequate cash to redeem the FCCBs on their due date. Despite the sale of the former Syndesis division, and signs of resilient operating profits, Subex has needed extra time to negotiate a restructuring. Following the precedent negotiated in a 2009 debt-equity swap, the deal will likely see bondholders accept new shares in exchange for seeing their bonds sliced in value and their repayment postponed for another 3 to 5 years.

The Long View

Markets go up and down, and deals come and go. Now might be a good time to remember some wise words from the ‘sage of Omaha’, Warren Buffett:

Occasional outbreaks of those two super-contagious diseases, fear and greed, will forever occur in the investment community. The timing of these epidemics is equally unpredictable, both as to duration and degree. Therefore we never try to anticipate the arrival or departure of either. We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.

talkRA has always tried to look beyond the fads of fear and greed that have beset the revenue assurance industry. We have challenged the more extravagant estimates of the growth and value of the RA sector, including those that originated with Subex. talkRA first highlighted Subex’s FCCB risks all the way back in 2008. Now it feels like public over-optimism in the RA market is giving way to an excess of private pessimism. If Subex keeps making sales like it seems to be, and keeps on generating cash, as it seems to be, then the business is fundamentally sound and investors will continue to back it. What is happening is the substitution of a more long-term and realistic outlook in place of the rapid-return, high-risk style of investment which fuelled the rise of RA vendors. In the case of Subex, this will occur somewhat in public, as bondholders will give up on nominal but unrealizable promises in order to recoup more in the long run, and as the original equity holders see their share diluted. Other companies will and should go through a similar process to align expectations to what the market can actually deliver – though the realignment may not be so apparent. Realism is a good thing, even when it means lowering expectations. From the data available, Subex is a solid business which looks likely to generate worthwhile profits in future. Now is not the time for panic, and I anticipate that Subex’s bondholders will share that view.

But what about takeovers? Might Subex be the target for another firm? I doubt it, though it as always a possibility. After all, takeovers occur when the seller’s price matches the buyer’s offer, and nobody can rule out an unexpected or irrational offer. However, there are several factors that count against Subex becoming a target. For a start, Subex is too big to be easily digested by any of its peers. Buying Subex’s shares would also miss the point – the bondholders have effective control over Subex’s fate, at least for the immediate future. A much larger firm might see opportunities to enter into this specialized market, but the difficulties currently experienced by other RA vendors would likely discourage activity until the competitive landscape is clearer. Also, RA products continue to be too much of a niche play to yield obvious synergies for other software firms or for more network-oriented suppliers. There are likely to be easier and cheaper ways for a newbie firm to dabble in RA, or for a current player to grow market share. So I expect the next few years for Subex will look much like the last few: they will keep on grinding out ways to enhance profits, whilst remaining a big fish within RA’s small pond.

Recent events in the revenue assurance world have highlighted some of the downside risks of relying on proprietary software. One of those risks is that a vendor with opaque finances might unexpectedly go bust, leaving telcos with unsupported software and no visibility of the source code. As such, the soft launch of a new open source RA project has come at the perfect time to generate a lot of interest. The launch is ‘soft’ in the sense that it was not intended to be broadly publicized, but the rumours have already spread rapidly, confirming the widespread desire for open source RA code. Spearheaded by Ahmad Fairuz Ali – better known on the internet as ‘dakmatt’ – the project has already released a Python-encoded reconciliation which can be downloaded from the project home at Sourceforge.

Dakmatt is keen to emphasize that the code is still at the ‘pre-alpha’ stage. More work needs to be done and at this crucial time he is looking to build momentum by recruiting more coders to his project. If you want to help, then start by finding out more at Sourceforge or through dakmatt’s blog.

Information about cVidya, the Israeli revenue assurance vendor, is so minimal, scatty and unreliable that even when you collect it all and piece it together, you rarely get a full or convincing picture of how their business is doing. But, thanks to a slip-up by Hezi Zelevski, their Vice President of Corporate Development, it has now been revealed that cVidya experienced zero revenue growth over the last two years.

Last week I blogged about cVidya’s announcement that 2011 revenues were up 25% from 2010, and how Globes had reported their total revenues were in the range of USD60M to USD70M. In the blog, I pointed out how Alon Aginsky, CEO of cVidya, had claimed that the merger of cVidya and ECtel had created a business with combined revenues of USD50M. And yet, Hezi Zelevski, touting cVidya for yet another round of venture capital funding, has revealed:

…the 300-employee company is doing about $50 million in revenue and doesn’t need additional money for day to day operations. It does see opportunities to grow even more rapidly than its 20 percent internal rate by making additonal acquisitions.

Excuse me? They are doing about USD50M in revenue? That is a lot less than the USD60M-70M that Globes reported. It is also echoes the words of Alon Aginsky, who said he was running a USD50M business following the January 2010 merger with ECtel. My gut tells me the lower number is the one to be trusted. This is the number being pushed to potential investors. We can anticipate that they will get a slightly more accurate story than the rest of us.

Hezi Zelevski was quoted for a promo piece in TechJournal, ahead of cVidya’s attendance at the Southeast Venture Conference. If what he says is true (and I believe him) then USD50M revenues for 2011 compares to USD50M revenues for 2009 which leads to the conclusion that, overall, cVidya’s revenues have not grown over the last two years. However, the promo piece in TechJournal also said:

Since its acquisition of Ectel in January 2010, Cvidya has seen its revenues grow 25 percent and saw significant growth in its customer base in 2011.

Excuse me? Last week we were told, in many different places, that cVidya’s 2011 revenues were up 25% on their 2010 year end revenues. Here we are told they are up 25% since the merger with ECtel in January 2010.

There are only two possible ways that cVidya has experienced 25% growth in revenues. One possibility is that cVidya revenues fell by 20% in 2010, and then climbed again by 25% in 2011. Do the math: USD50M revenues for the 2009 year end falls to USD40M for 2010, which grows to USD50M for 2011. Overall that equates to zero growth. The other possible explanation would be that Alon Aginsky lied about the combined firm having USD50M revenues at the 2009 year end. At the time I speculated that the combined ECtel-cVidya revenues were likely to be around USD40M and that cVidya had exaggerated when stating they had the largest share of the market by revenues. If the 2009 year end revenues had been USD40M, that would fit with the TechJournal version that post-merger revenues had grown by 25% to a current level of USD50M. However, I think the former theory is more likely to be closer to the truth. At the end of 2010 cVidya said nothing about growth, which makes me think they kept quiet about a difficult year following the merger.

Whichever way you look at it, cVidya’s reports about its revenues are very suspicious… and not very impressive for a firm that sells ‘revenue intelligence’. Because there are so many contradictions, at least half of what we hear is untrue. How can I be so emphatic? I am just a simple risk manager, and risk managers do their work by gathering as much data as they can about uncertainties, in order to assess risk as best they can. But when the data is this contradictory, you cannot trust any of it.

After revealing how little we know about cVidya’s revenues and growth rates, what have we also learned about cVidya’s business strategy? That it is a mystery too! Globes suggested that Goldman Sachs may be screening potential buyers for cVidya. However, in TechJournal, Zelevski is quoted as saying that cVidya would use a new cash injection to make acquisitions. So right now, we have no idea if cVidya’s management team is trying to buy, sell, or maybe do both at the same time. If the combined cVidya-ECtel revenues fell by 20% in the year following merger, and they spent another year just getting back to where there were, then that is not a management team that should be encouraged to engage in more M&A. Do not forget that they obtained a huge cash pile from ECtel but seemingly they have used it all and now need more cash. Zelevski suggests the firm has broken even and they have fabulous rates of organic growth. Well, if the management team has discovered the knack of great organic growth, and have got costs under control, then why not let them prove their worth by showing current investors a repeat year of spectacular growth, culminating with profits for the first time ever? That way the company might actually fetch a decent price when put on sale. If they can maintain current growth rates, they will soon be number one in the market, beyond dispute. There is no need for cVidya to buy another loss-making company. With rivals in difficulties, cVidya would be better off picking up disgruntled customers without wasting money on buying an unwanted business. After all, they report impressive growth in the number of customers they serve. If you believe what cVidya’s management team says about their firm, then it makes no sense to give them money for M&A which will just bog down the business in a mess of integration for another year or more. And if you do not believe what cVidya’s management says about their firm, then why would you give them money?