Pay Attention To That Man Behind The Curtain

EQUITY RESEARCH INDUSTRY UPDATE
July 20, 2009
TECHNOLOGY/COMMUNICATION SOFTWARE
Pay Attention to That Man Behind The Curtain

Network Complexity and the Quest for Customer Intimacy
SUMMARY
In this brief, we explore the impact of network complexity and competition for customers on three classes of mission-critical telecommunications systems: Operations Support Systems (OSS), Business Support Systems (BSS) and Interoperability. We believe increasing network complexity and evolving customer preferences will accelerate capital flows into BSS (the domain of DOX, CMVT), OSS (where DOX and TTIL are active) and Interoperability (where SVR and NSR compete). OSS, BSS and Interoperability vendors often toil out of sight, cloaked by a curtain separating user experience from the telecom engine. We urge investors looking to leverage telecommunications evolution to seek out hidden opportunities by peeking behind that curtain.
KEY POINTS s
BSSs are the systems closest to and interacting with customers. OSSs are deployed to manage telecommunications networks, and interoperability systems facilitate communication between diverse telecommunications systems. These three system classes, interconnected and interdependent systems, are integral to the provision of telecom services. As the march of technology expands the number of devices accessing telecom networks, and as consumers' expectations for performance rise, network complexity is driving demand for BSS, OSS and interoperability solutions and accelerating the flow of capital toward providers of these solutions. Our favorite names in the BSS space include DOX and CMVT. In the OSS space, DOX takes top marks, and in the interoperability segment, we rank SVR highest. In the closely related contact center space, we give high marks to NICE and VRNT. This report was inspired by our colleagues' paper, "The Genie Is Out of the BottleApplications Separating from the Network," 6/11/2009, which explores network-centric computing and industry segmentation. We also lean on the intellect of Oppenheimer's Semiconductors and Components team for guidance related to the implications of semiconductor technology advances. OSS, BSS and Interoperability companies likely to attract new capital often toil in relative obscurity behind the curtain separating user experience from the telecom engine. We urge investors to pursue hidden opportunities by peeking behind the curtain.
Shaul Eyal 212-667-8411

Shaul.Eyal@opco.com
Hugh Cunningham 212-667-7082

Hugh.Cunningham@opco.com
Manish Hemrajani 212 667-5407

Manish.Hemrajani@opco.com
Oppenheimer & Co. Inc. does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. See "Important Disclosures and Certifications" section at the end of this report for important disclosures, including potential conflicts of interest. See "Price Target Calculation" and "Key Risks to Price Target" sections at the end of this report, where applicable.
Oppenheimer & Co Inc. 300 Madison Avenue 4th Floor New York, NY 10017 Tel: 800-221-5588 Fax: 212-667-8229
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Table of Contents
ACKNOWLEDGMENTS.................................................................................................................................. 3 INTRODUCTION: PAY ATTENTION TO THAT MAN BEHIND THE CURTAIN: ............................................ 4 THE MAGICAL MACHINERY OF TELECOM (AND SOME COMPANIES KEEPING THE WHEELS OILED) ............................. 4 IT WAS THE BEST OF TIMES, IT WAS THE WORST OF TIMES .................................................................................. 5 2007: LAISSEZ LES BON TEMPS ROULEZ! ....................................................................................................... 5 2008: ANNUS HORRIBILIS .............................................................................................................................. 5 BSS: BUSINESS SUPPORT SYSTEMS ........................................................................................................ 7 KEEP YOUR VENDORS CLOSE, BUT KEEP YOUR CUSTOMERS CLOSER. ............................................................... 7 EXHIBIT 1: TELECOM CARRIERS ESTIMATED EXTERNAL BSS SPEND 2009-2013 ($BILLIONS) ............................. 8 EXHIBIT 2: KEY BSS VENDORS ...................................................................................................................... 8 SPOTLIGHT: AMDOCS (DOX, OUTPERFORM) ................................................................................................... 9 TECHNOLOGY SPAWNS A STRUGGLE FOR MIND SHARE .................................................................................... 9 SECRET OF A HEALTHY CUSTOMER RELATIONSHIP: THE CUSTOMER IS QUEEN ................................................ 9 "THAT'S W HERE THE MONEY IS": BEHIND THE STRUGGLE FOR CUSTOMER INTIMACY: .........................................10 FIRST CONTACT: BSS MANNING THE FRONT LINES OF THE BATTLE FOR THE CUSTOMER ....................................10 SPOTLIGHT: NICE SYSTEMS (NICE, OUTPERFORM) .......................................................................................11 SPOTLIGHT: VERINT SYSTEMS (VRNT, OUTPERFORM .....................................................................................11 LESS QUIET ON THE W ESTERN FRONT: CRM OUTSOURCING MAY BE SLOWING ................................................12 SPOTLIGHT: COMVERSE TECHNOLOGY (CMVT, OUTPERFORM) .......................................................................12 SPOTLIGHT: CSG SYSTEMS (CSGS, PERFORM) ............................................................................................14 A STOCHASTIC SAUNTER DOWN TELECOM LANE ............................................................................................14 OSS: OPERATIONS SUPPORT SYSTEMS..................................................................................................17 EXHIBIT 3: W ORLDWIDE OSS REVENUE 2006 2013 ($BILLIONS) ..................................................................17 EXHIBIT 4: SELECTED OSS VENDORS............................................................................................................18 EFFICIENT NETWORK HYPOTHESIS: THE SECRET IS IN THE OSS ......................................................................19 SOME THAT DOES NOT GLISTER IS GOLD .....................................................................................................20 CLEAR AND PRESENT DANGER: SECURITY RAISES ITS PROFILE .......................................................................21 THE BREAKUP: APPLICATIONS AND THE NETWORK GO THEIR SEPARATE W AYS .................................................22 THE SUM OF ALL FEARS: CARRIERS RESIST COMMODITIZATION .......................................................................22 INTEROPERABILITY .....................................................................................................................................25 TOWER OF BABEL 2.0: INTER-OPERABILITY RECONCILES A CONFUSION OF PROTOCOLS .....................................25 EXHIBIT 6: KEY INTEROPERABILITY VENDORS .................................................................................................25 SPOTLIGHT: SYNIVERSE TECHNOLOGY (SVR, OUTPERFORM) ..........................................................................25 W HAT WE HAVE HERE IS FAILURE TO COMMUNICATE ......................................................................................26 APPENDIX 1: BILLING PRIMER ...................................................................................................................28 APPENDIX 2: OSS FUNCTIONAL FRAMEWORK ........................................................................................30 APPENDIX 3: BSS FUNCTIONAL FRAMEWORK .......................................................................................32 APPENDIX 4: NC COMPUTING WHAT IS DIFFERENT THIS TIME .........................................................34 NC Computing Happening Now ...........................................................................................................35 APPENDIX 5: SELECT COMPANY SNAPSHOTS (ALPHABETICAL) ..........................................................37 COMPANY SNAPSHOT INDEX ....................................................................................................................47
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Acknowledgments Most important, thank you for considering our ideas ; we hope you find a nugget or two of helpful information in the following pages. We owe a debt to the authors of Oppenheimers report, "The Genie Is Out of the BottleApplications Separating from the Network" (June 11, 2009), and to Oppenheimers Semiconductors and Components team, for guidance related to the implications of semiconductor technology advances. In addition, we thank the myriad industry participants who were kind enough provide assistance and those experts whose work we reference. All errors, of style or substance, are our own. Shaul Eyal (212) 667-8411 Manish Hemrajani (212) 667-5407 Hugh Cunningham (212) 667-7082
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And, for abundant alliteration, frequent footnoting, and rampant referencing, we beg your indulgence. Source: Pay Attention to That Man Behind the Curtain Oppenheimer & Co., July 2009.
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Introduction: Pay Attention to That Man Behind the Curtain: The Magical Machinery of Telecom (and some companies keeping the wheels oiled) Arthur C. Clarke, author of the short story that inspired "2001: A Space Odyssey," posited that "Any sufficiently advanced technology is indistinguishable from magic." Indeed, many of today's most exciting telecommunications devices, the Apple iPhone, the Palm Pre, SlingMedia's Slingbox, deliver almost magical experiences. In the 1939 Adaptation of Baum and Denslow's "Alice in Wonderland," the Wizard, discovered behind the curtain, implored, "Pay no attention to that man behind the curtain." Many of the companies discussed in this brief are critical cogs in the telecom machine, yet their labors are cloaked from the casual observer. Such companies enable proper network functioning, manage customer service and billing, facilitate intercarrier communication and protect network integrity. Our favorite names in the BSS space include DOX and CMVT. In the OSS space, DOX takes top marks, and in the interoperability segment, we rank SVR highest. In the closely related contact center space, we give high marks to NICE and VRNT. We suggest that investors seeking profits from telecom evolution pay attention to the firms toiling behind the curtain.
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It was the best of times, it was the worst of times
2007: Laissez Les Bon Temps Roulez! During 2007, the rise of data services ranked among the happier developments for telecom players. Data services promised to recruit new customers and to provide new revenue opportunities, which promised new opportunities for BSS and OSS vendors. The good times were set to roll, and as Elisabeth Rainge of IDC 2 writes: In 2007 OSS/BSS vendors, like other telecom infrastructure suppliers, were caught up in the initial euphoria of successful mobile data and content-based entertainment services. Creating or modifying service delivery platform (SDP) strategies, expanding rating and billing mediation capabilities or otherwise showing alignment with revenue growth strategies, especially through value-added services, was the top marketing priority. 2008: Annus Horribilis And then, things fell apart. The rising panic of 2008 extinguished the euphoria of 2007. The US housing sector imploded; the financial sector stumbled, and dispirited consumers clutched pocketbooks close. As telecom customers succumbed to a macro-economic onslaught, service providers instinctively moved quickly to reduce capital and operating expenditures. Service providers postponed, cancelled or scaled back BSS and OSS projects. BSS/OSS sales cycles stretched out as new gatekeepers appeared in the purchase approval chain, and vendors found calls unreturned. This Too Shall Pass; Value Proposition, Bowed, but Unbroken: OSS/BSS vendors value proposition: that strategic deployment of effective BSS and OSS reduces operating costs and enables new revenue opportunities remains valid despite economic turmoil, tactical (i.e., short-term) reductions in carrier spending. The Bottom, Are We There Yet? We do not know if the global economy has reached its cyclical nadir; however, our recent checks suggest that in contrast to the gloomy sentiment that pervaded the early months of 2009, sentiment has improved among our channel contacts. In fact, our most recent conversations reveal that BSS/OSS vendors are getting calls returned, and potential customers are kicking the tires even if they are not quite ready to ride. Buttressing our confidence in our channel-level intelligence, Oppenheimers Communications Technology team recently improved (increased) their estimate for 2009 global carrier capital expenditures. That team now expects 2009 capital expenditures for the 33 largest carriers, covering roughly 70% of global carrier 3 capital expenditure, to decline 4.9% compared to 2008, a meaningful improvement compared to their prior 4 expectation for a decline of 6.5%. BSS/OSS: Complementary, Intertwined Systems OSS and BSS are complementary, interconnected classes of systems; the OSS/BSS structure of our paper is primarily to distinguish each classs respective role in the ecosystem. We believe that vendors serving either system class will seek to expand capabilities within that class. Furthermore, we believe that vendors will attempt to enhance their offerings by developing capabilities in both OSS and BSS.
For BSS/OSS, Telecom Advances Up the Ante We believe that the advent of 4G networks will spawn a host of enterprise and consumer services. Effective delivery of these services will require advanced OSS, and generating revenue from these services will require advanced BSS.
2 3
2008 OSS/BSS Deal Trends, October 1, 2008. Elisabeth Rainge, www.idc.com. 2Q09 CapEx Tracker, May 25, 2009, Oppenheimer & Co. 4 1Q09 CapEx Tracker, February, 2009, Oppenheimer & Co.
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As Patrice McAree of Zoombak notes: The march of technology is laying waste to barriers that have historically protected market fiefdoms, forcing business models to adapt. In my own experience, telecommunications evolution is enabling compelling new services and sparking rivalry between players heretofore insulated from each other. At Zoombak we leverage technology to deliver the 5 greatest utility to customers rapidly and cost effectively . Patrice McAree, Chief Development Officer, Zoombak
Interview with Patrice McAree, Chief Development Officer, Zoombak, 7 July 2009
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BSS: Business Support Systems

Keep your vendors close, but keep your customers closer. Don Vito Corleone , if he had chosen a career in Business Support Systems Defining BSS Closely linked to OSS, BSS are the systems processes closest to and interacting with end users. One function-based model identifies BSS constituent components as: Marketing/Sales Management Product Management Service and Resource Management Partner/Supplier Management Enterprise Management Appendix 3 presents a more detailed description of BSS functional areas. The global BSS market is large and fragmented. Although the largest carriers rely primarily on a small group of larger vendors, many carriers source BSS solutions from multiple vendors. In addition, a large number of smaller vendors compete to serve smaller carriers. Carriers spend significant amounts on BSS both internally and externally. From an external spend perspective, Gartner estimates that in 2009, telecom carriers will spend $14.2B on BSS solutions, with the lions share, $10.9B, targeting billing solutions. Gartner also expects carriers to spend heavily on internal billing solutions with 2009 internal billing 7 expenditures estimated at $12.4B . Exhibit 1: presents our estimate of carriers expected external BSS spend from 2009 through 2013.
6
6 7
AKA Vito Andolini "Dataquest Insight: Carriers and Vendors Must Prepare For Further Consolidation in the BSS Market" Document #G00164864, 12 February 2008.
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Exhibit 1: Telecom Carriers Estimated External BSS Spend 2009-2013 ($Billions)

Worldwide Carrier BSS External Spend 2009-2013 ($Billions)
18.0
16.0
14.0
12.0
10.0
8.0
6.0
4.0
2.0
External BSS Spend
2009 14.3
2010 15.1
2011 15.9
2012 16.8
2013 17.7
Source: Oppenheimer & Co., Gartner and IDC
Exhibit 2 presents a selection of BSS vendors.
Exhibit 2: Key BSS Vendors Key BSS Vendors
Key BSS Vendors

Alcatel-Lucent Cerillion Technologies Comarch Convergys Digital Route Evolving Systems Infonova IBM MaxBill Nokia Siemens Networks Peter-Service WeDo Technologies
Amdocs CGI Comptel CSG Systems ECtel Fair Isaac HP Intec MetraTech Openet Telecom Sofrecom Wisor Telecom
Aricent Clarity Comverse CVidya Networks Ericsson FTS Huawei LHS Mind CTI Oracle Subex ZTEsoft
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Spotlight: Amdocs (DOX, Outperform)

Share Price 15 July 2009 Shares Outstanding Market Cap Cash Equivalents Debt 2010E Revenue 2010E Non-GAAP Operating Margin 2010E Non-GAAP EPS $22.35 204M $4.6B $1.3B $451M $2.8B 18% $2.10
Amdocs is a leading provider of BSS and OSS services and software to telecom customers. Key Points Leading independent billing vendor 70% recurring revenue (40% managed services, 30% maintenance and support) Cutting-edge CES 7.5 suite is among the most advanced products capable of addressing the demands of next-generation telco/cable systems. Capable of executing massive projects Boasts a highly diversified product and service portfolio Maintains an extensive geographic reach Strong relationships with leading telecom and cable companies, including AT&T, Sprint Nextel, Bell Canada, and Comcast.
Source: Oppenheimer& Co. estimates, Reuters market data
Technology Spawns a Struggle for Mind Share Semiconductor miniaturization has increased the processing power of electronic devices, spurred the integration of enhanced functionality and sparked an explosion in the number of telecom services. In our 9 view, users desire for constant connectivity combined with lower semiconductor costs , reduced power dissipation, and radio frequency technology advances should generate an exciting variety of devices and services. Even as they facilitate consumption of telecom services, electronic devices are evolving into valves that control vendors interaction with users. As the number of services vying for mind share rises, the value of the channel to the customer also rises.
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Secret of a Healthy Customer Relationship: The Customer Is Queen BSS, Business Support Systems, are the telecommunication systems that interact with customers (and hopefully keep them happy). BSSs are critical for managing customer relationships, for defining and maintaining brand identity, and for controlling the customer experience. Effective BSSs enable the execution of multiple mission-critical activities, including:
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Billing preparation Bill presentation Order taking Call center management and customer service Customer satisfaction measurement Marketing
Consistent with Moores Law, or more properly Moores prediction. Semiconductor manufacturing costs per transistor continue to decline, consistent with Moores law; however, semiconductor manufacturing technology is rapidly approaching significant manufacturing challenges at advanced, nano-scale process technologies.
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"That's Where the Money Is": Behind the Struggle for Customer Intimacy: According to an old (and possibly apocryphal) story, serial bank robber Willie Sutton told a reporter that he robbed banks because "that's where the money is." While Sutton's moral compass may have been faulty, his powers of observation were apparently fully functioning. Enhanced customer access allows vendors to manage customer retention, to push product, and to extract tribute from third parties. Telecom firms are escalating efforts to create and maintain customer intimacy as an intermediate objective on the way to claiming wallet share. First Contact: BSS Manning the Front Lines of the Battle for the Customer Across the economic landscape, from consumer products to entertainment services, firms are increasingly focused on the opportunities created by each conversation, each email, and each interaction with customers. Systems that interact directly with users are critical weapons in the battle for customers, and as this battle quickens, customer-related processes such as customer service are being re-evaluated as strategic levers instead of cost centers. BSS systems play a fundamental role in determining a firms ability to communicate with its customers and to manage customer satisfaction. As Alan Dabrowksi of Optimal Healthcare Products points out: With the advance of communications technology, telecom service providers are integrating themselves into their clients most fundamental business processes, reaching and delivering value to customers. Execution is critical, and there is little room for error. 11 Someone is waiting around the corner to eat your lunch . Alan Dabrowski, Principal, Optimal Healthcare Products
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Firms on the front line provide a range of services from customer service call centers (e.g., Convergys) to workforce optimization software (e.g., Verint Systems, NICE Systems) and from telephone call recording services (Verint Systems, NICE Systems) to billing services (CSG Systems, Amdocs, Comverse). 11 From a July 10, 2009 interview with Alan Dabrowksi, Principal, Optimal Healthcare Products.
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While NICE Systems and Verint Systems are not BSS/OSS vendors in a strict sense, they are on the front lines of their clients interactions with end-users, and they rank among our top picks. For those reasons, we spotlight them here.
Spotlight: NICE Systems (NICE, Outperform)

Share Price 15 July 2009 Shares Outstanding Market Cap Cash Equivalents Debt 2010E Revenue 2010E Non-GAAP Operating Margin 2010E Non-GAAP EPS $23.75 61.6M $1.5B $530M $0M $644M 18.4% $1.75
NICE provides solutions that enable audio and video recording, workforce optimization, and data analytics to the enterprise and security markets. Key Points Enterprise, 75% of revenue, helps customers cut costs. Security, 25% of revenue, driven by anti-crime, anti-terrorism Approximately 40% recurring revenue. Highly capable management team
Spotlight: Verint Systems (VRNT, Outperform

Share Price 15 July 2009 Shares Outstanding Market Cap Cash Equivalents Debt Preferred 2010E Revenue 2010E Non-GAAP Operating Margin $10.19 33M $333M $187M $625M $293M $724M 14.2%
VRNT provides solutions that enable audio and video recording, and workforce optimization to the enterprise and security markets. Key Points Positive Catalyst: Resolution of long-running accounting restatement process should remove uncertainty overhang (parent has announced February 8, 2010 as expected resolution date) Expected parent restructuring could eliminate holding company discount Leveraged to workforce optimization, security intelligence, compliance recording. Witness acquisition in 2007 solidified VRNTs position as a major workforce optimization competitor.
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Less Quiet on the Western Front: CRM Outsourcing May Be Slowing Recent signs suggest that with the elevation of customer service in the strategic arsenal, the eastward flow (via outsourcing) of customer relationship management operations may be slowing. Writing for searchtelecom.com, Michael Morisy notes that: Telecoms are recognizing that customer service is a strategic differentiator and not a cost center. As a result, companies like AT&T are bringing customer service jobs that had been outsourced overseas back stateside and into the company. Despite the recession, AT&T has a plan to "repatriate" 5,000 customer service positions to the United States. Three thousand of those jobs are already back in the fold. It's an unusual trend among daily announcements of layoffs, but the strategy might pay off in 12 reducing costly churn .
Spotlight: Comverse Technology (CMVT, Outperform)

Share Price 15 July 2009 Shares Outstanding Market Cap Cash Equivalents Debt 2010E Revenue 2010E Non-GAAP Operating Margin 2010E Non-GAAP EPS $8.24 220M $1.8B $1.3B (ex. $0.2B of auction rate) $1B $1.9B 14.2% $0.84
Comverse Technology is the parent company of: Comverse Network Systems, a provider of software and systems, enabling network-based messaging and content value-added services, prepaid, postpaid and converged billing and IP communications; Verint Systems a provider of analytic software solutions for digital video security and surveillance, communications interception, and enterprise business intelligence; Ulticom, a global leader and innovator of service enabling signaling software for wireline, wireless and Internet communications; and Starhome, a leading global provider of mobile roaming technology and services. Key Points Positive Catalyst: Resolution of long-running accounting restatement process should unlock value (company has announced February 8, 2010 as expected resolution date) Positive catalyst: Likely capital restructuring should unlock value Leading software player with over 500 customers in 130 countries
Telecoms now see customer service as differentiator, not cost center, searchtelecom.com, 12 Feb, 2009.
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Hierarchy of Consumer Wants13: Consumer Preferences Guide Telecom Evolution
We believe the key consumer preferences shaping the evolution of telecommunications include customers desire for: 1. 2. 3. 4. 5. Constantly connected, mobile-enabled, high-speed service (mobility is increasingly important). Access to a complete menu of products and services A single, simple and accurate bill for bundled products A single, highly responsive point of contact with the service provider Low Cost
Enterprise Preferences Reflect Enterprise Threats We believe the key enterprise preferences shaping telecommunications include requirements for: 1. 2. 3. 4. 5. Constant connectivity High-speed service Remote IT management of mobile devices Enterprise class, remotely administered security Low total cost of ownership
BSS Vendors Help Carriers Take Careful Aim BSS vendors enhance their clients ability to develop customized, contextual offerings based on customer attributes such as home address, current location or user age. Customized offerings provide end-users with greater utility, and the ability to deliver this utility enables carriers to create new revenue opportunities while reducing marketing costs. For example, CSG Systems Quaero Customer Intelligence (acquired January 2009) leverages data from CSG Systems billing system and other sources to provide customers with information and strategies for improving subscriber retention and for refining marketing strategies. Similarly in November 2008, Amdocs announced the acquisition of ChangingWorlds, a provider of sophisticated profiling and personalization capabilities for the mobile Internet. Amdocs announced that it intends to expand the use of ChangingWorlds technology to three screens (mobile, PC and television) and will leverage its existing digital content and commerce offerings to enable service providers to support new revenue engines. Billions & Billions: The Connected Universe Is Large, Complex and Expanding Weve borrowed the title of Carl Sagan's essay collection to dramatize the ongoing, exponential proliferation of network devices. Myriad devices from mobile telephones to shipping trackers, from net14
13
With acknowledgement to Professor Maslow.
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books to media-phones are increasingly tapping into high-speed, converged networks. In May 2009, 15 Amdocs referred to this dramatic growth, announcing : . . . support for service providers looking ahead to a not-too-distant future, when more than 1 trillion devices will be connected to the network, an industry phenomenon the company calls "Tera-play." Forecast to arrive by 2015, the Tera-play is being driven by growing demand for ubiquitous connectivity and connected devices. The related customer experience and bandwidth-consumption concerns will render service providers' operations exponentially more complex and potentially very costly. For example, already, support costs for smart-phones are 400 percent higher than regular phones, and their penetration is expected to climb from 30 percent today to 75 percent within five years.
Spotlight: CSG Systems (CSGS, Perform)

Share Price 15 July 2009 Shares Outstanding Market Cap Cash Equivalents Debt 2010E Revenue 2010E Non-GAAP Operating Margin 2010E Non-GAAP EPS $13.68 220M $472M $120M $165M $513M 17.4% $1.58
CSG Systems provides software- and services-based solutions that process its clients billing invoices and manages clients interactions with customers across multiple media platforms. Key Points Strong cable/satellite pedigree with cable customers including Comcast, Time Warner Cable and DISH Network Processes data for 45M of its clients' subscribers and issues over 65M invoices monthly Services such as broadband, video on demand, and VoIP are providing CSGS with opportunities to establish new client contacts Quaero Customer Intelligence (acquired Jan. 2009) leverages data from CSGS's billing system to improve clients subscriber retention and marketing strategies. Has diversified into areas such as financial services, healthcare and utilities. Major non-cable customers include ADT, Brinks. Non cable revenue is ~15%.
A Stochastic Saunter Down Telecom Lane Cloud Billing Set to Rise 16 Recent increases in the adoption of cloud computing are turning a spotlight onto cloud billing systems . 17 IDC believes that cloud providers will likely turn to telecom billing providers for customized billing solutions
14 15
Billions & Billions, Sagan, Carl, 1998, Ballantine Books Amdocs Announced Support for the Six Core Competencies in The Age of Tera-Play, May 5, 2009, Amdocs press release retrieved from www.amdocs.com. 16 IDC forecasts that billing related to cloud computing is expected grow by a compound annual growth rate of 72% from $15 million in 2008 to $350 million in 2013.
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as telecom billing providers have extensive experience providing flexible billing systems. Furthermore, modern telecom billing platforms are designed to be complementary to customer services activities. Mobile Search and Mobile Advertising We expect the quest for customer intimacy to shape mobile search and mobile advertising activity. 18 Gartner advises carriers to focus on enabling targeted and personalized advertising and to improve companies return on advertising investments, noting that: Today's carriers have a large base of customers, which can appeal to advertisers and marketers. It's increasingly important for carriers to develop customer intimacy, and focus their efforts on targeted and personalized advertising. Carriers could either use their network infrastructure to help advertisers achieve their new goals (by offering the network as an enabler), or try to make money from advertising directly, through new platforms such as Internet protocol television (IPTV) and mobile TV. Gartner, Advertising Opportunities for Carriers Hinge on Customer Intimacy The name of the game for any firm involved in mobile commerce is monetization, and innovative, new players are emerging to enable the conversion of customer interactions into cold, cold hard cash. As 19 Thomas Schulz of AdMob observes : As the expansion of the mobile web accelerates, stakeholders are wrangling for position, buffeted by complex forces including: users traditional reluctance to pay for content, the diversity of operators mobile web strategies, the increasing sophistication of mobile applications, and the rising popularity of social networks and mobile sites. Out of this complexity, creative, well executed, advertising funded models are emerging as the most compelling path to monetization. At AdMob we help our clients negotiate this path-torevenue rapidly and efficiently. Thomas Schulz, Managing Director EMEA, AdMob Toll Highway Ahead: Pressure for Monetization Will increase Barry Diller, entertainment and media veteran and Chairman of IAC, reportedly expects the Internet to become a paid system and believes that the barrier to a paid system is the lack of a simple, effective billing 20 system . Enhanced Billing Capabilities Could Open New Revenue Opportunities We believe there are probably innovative, new services that carriers have delayed offering because of billing system limitations. We believe advancements in billing systems will encourage the development of new products and services.
Key Trends in Consumer Communications

In a review of trends affecting consumer communications, Gartner highlighted the following :
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17
Worldwide Telecom Cloud Billing 2009 2013 Forecast, IDC, May 2009. IDC Document #217313. Factors impacting the architecture of cloud billing systems include the number of subscribers served, the volume of transactions expected, usage patterns, and the complexity of service offerings. From a technical standpoint, implementation of a flexible and efficient rating engine will be a key factor for successful evolution of cloud billing. 18 Dataquest Insight: Advertising Opportunities for Carriers Hinge on Customer Intimacy, Gartner, 20 March 2007, Document ID Number G00147021 19 Interview with Thomas Schulz, Managing Director EMEA-, AdMob, 7/10/2009. 20 Quoted in a ZDNet article covering Mr. Dillers keynote address to the IAC hosted event, Advertising 2.0, June 10, 2009. Retrieved from IAC's media room, iac.mediaroom.com
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The home will emerge as a key battleground. Consumer hardware and software vendors, Internet application providers and a few major carriers will intensify their focus on establishing "control" of the future home hub. Such control will play a major role in determining who can make money from new services sold into the home. Users will redefine services. This has already happened on the Internet, as people are now used to controlling their own service experiences. The next two years will see traditional carriers start to embrace this service ethos as well. The audience for consumer services will continue to fragment. While the consumer services market is converging with other markets at a high level, it is also fragmenting at the individual consumer level. Technology has enabled service providers and vendors to serve ever-smaller consumer niches. Providers will struggle to define a unified vision for video. Video will be a central element of service provider strategies. There will be no shortage of visions offered for the future of video, but the real answer will not emerge in the next two years.
For More on Billing Accurate telecommunications billing requires sophisticated hardware and software For more on billing, please see the appendix to this note and our July 28, 2008 paper, "Convergence: The Next Billing Frontier; DOX, CMVT and CVG Light the Path."
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Market Trends: Reshaping Consumer Communications Services Markets, Worldwide, 2008-2009, 8 May 2009. Document ID Number G00157808
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OSS: Operations Support Systems

The day is coming when telegraph wires will be laid on to houses just like water or gas is, and friends will converse with each other without leaving homes." Alexander Graham Bell in a letter to his father, 10 March, 1876 In this section of our report we examine the role of OSS in the delivery of communications services. Exhibit 3 illustrates the size and growth of the OSS market.
Exhibit 3: Worldwide OSS Revenue 2006 2013 ($Billions)
Worldwide OSS Revenue 2006-2013 ($Billions)
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
OSS Revenue ($B)
2006 2.3
2007 2.5
2008 2.6
2009 2.8
2010 3.1
2011 3.3
2012 3.5
2013 3.8
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Need for Integrated Solutions Encourages Consolidation The OSS vendor space is fragmented, with a relatively small group of larger players serving larger carriers and a number of smaller players offering point solutions and serving smaller carriers. As Shira Levine points 22 out, operators preference for easier-to-manage integrated solutions, along with the challenges typically associated with selling to Tier 1 customers (long sales cycles, multiple levels of bureaucracy), increases the pressure on smaller independent software vendors that are less likely to boast product arsenals broad enough to compete effectively against larger players.
Defining OSS One function-based model divides OSS into fulfillment and assurance processes: Fulfillment Fulfillment refers to processes critical to implementation of a service order and delivery of the service to the end-user. These processes include: Workforce management Inventory Order management Activation Interconnection management Assurance Assurance refers to the processes critical to ensuring that services are delivered correctly and properly accounted for. These processes include: Performance management Fault management Service quality management: Please see Appendix 2 for a view of OSS from the perspective of service and resource management functions. Exhibit 4 presents a list of selected OSS vendors.
Exhibit 4: Selected OSS Vendors
Key OSS Vendors

Alcatel-Lucent Comptel IBM Oracle Telcordia
Key OSS Vendors Amdocs Ericsson NetCracker Subex
Comarch Hewlett Packard Nokia-Siemens Team Telecom International
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No Future for One-Trick Ponies in OSS Realm, IDC, April 24, 2008
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The Role of OSS With a place to stand and a lever, Archimedes would move the world; with OSS, carriers 23 can move virtual worlds. .
Efficient Network Hypothesis: The Secret Is in the OSS OSS, Operational Support Systems, refers to the software and systems employed in managing a telecommunications network. These systems are critical in executing a number of key functions including: Managing network inventory Preparing the network to provide new service Initiating service Configuring the network Managing faults
OSS capabilities are critical to service providers ability to flexibly provide a full roster of services. 24 Contributing to searchtelecom.com , Jeff Cotrupe compares the key functions of OSS to managing traffic on a highway: In today's packet-switched, content-driven, multi-network, multi-technology world, you have to manage the traffic that's screaming down that highway, ensuring that vehicles of every type flow smoothly to all destinations. That means supporting Voice over IP (VoIP), high-speed data, unified communications (UC), video, and an ever-growing lineup of digital media applications. Legacy systems were simply not equipped to keep up with the pace -- or to continue the auto analogy, if they were up to speed, they were built to recognize only one vehicle, while new ones rocketed past undetected and unmanaged Jeff Cotrupe, CEO of MarketPOWER AMDOCs Zeroes in on OSS In 2006, Amdocs acquired UK-based Cramer, and since then Amdocs has integrated and extended Cramers OSS portfolio while establishing partnerships with key industry players such as IBM and Cisco to deliver advanced, standards-based OSS solutions. In 2008, Amdocs acquired UK-based Jacobs Rimell Ltd., a supplier of fulfillment solutions for the broadband cable industry, extending its OSS capabilities and bolstering its position in the cable market. During its analyst day in February, Amdocs highlighted OSS as a key strategic priority for the company.
23 24
Admittedly, this analogy is a huge stretch; however, were partial to the classical philosophers. Tackling nextgen network OSS/BSS challenges, 9/12/2008, Searchtelecom.com
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Some That Does Not Glister Is Gold
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In the telecom sector, introduction of glistening gadgets generates excitement, and the market reception of new devices can dramatically impact the fortunes of players up and down the value chain, from chip maker to carrier. Arguably, OSS and BSS advances have even greater potential to shape customers experiences and 26 service providers prospects. As Mike Dano writes: . . . those who understand the operational support system (OSS) and business support system (BSS) space contend that some of the market's greatest innovations are set to spring from these pipes that represent the guts of the wireless industry.
Mobile Device Proliferation and Surging Data Traffic Magnify OSS Needs Our colleagues, the authors of "The Genie Is Out of the BottleApplications Separating from the Network," have written for several years that mobile data would ultimately be the driver of the golden age of networkcentric computing. They believe that network-centric computing is now entering that golden age, and they argue that the utility of fundamental computing resourcesprocessing power and stored datais enhanced by the ability to access these resources remotely. Appendix 4 delves into the intricacies of network-centric computing. Our colleagues also foresee accelerating emergence of smart-phones, net books, mobile Internet devices and mobile applications, and they expect increasing deployment of these devices and applications to be the major driver of communications industry growth over the next five years, with wireless data traffic potentially doubling every six months or so. Exhibit 5 presents our colleagues estimates for monthly smartphone data traffic from 2008 through 2015. Exhibit 5: Expect Explosive Growth in Data Traffic from Smartphone Users
Monthly Smartphone Data Traffic (TB)
158,600 141,065 103,124 64,812 32,628 3,244 7,252 16,389
2008
2009E
2010E
2011E
2012E
2013E
2014E
2015E
Source: Oppenheimer & Co.
Telecom network performance is increasingly essential to the proper functioning of communications systems, and rising penetration of mobile devices is escalating the demand on telecom networks. Robust OSS platforms are critical for maintaining network availability, performance and integrity.
Partial rebuttal to the gold box inscription, The Merchant of Venice. The guts of wireless: OSS/BSS market on the brink of change, Mike Dano, June 15, 2009, www.fiercewireless.com.
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Competition Sharpens the Need for Robust OSS Solutions

Competitive rivalry elevates the risk posed by malfunctioning systems. As a result, we believe operators will gravitate away from point solutions and the associated integration challenges and toward more advanced, integrated solutions.
OSS Demand Drivers We highlight some of the industry developments that should increase the demand for advanced OSS capabilities. Each of these developments either places significant demands on networks, leverages networks to provide important new revenue opportunities, or transforms networks in a fundamental way. Location, Location, Location: Location-based services allow carriers to increase marketing efficiency and to encourage point-of-purchase buying decisions. Video, Worth a Bit (or gigabit) More Than a Thousand Words: Video transmission increases bandwidth requirements by orders of magnitude and may represent the ultimate challenge for modern networks. E pluribus unum: Convergence takes many forms fixed/wireless, pre-paid/post-paid, voice/data, for example. In all its forms, convergence demands capable networks and effective network management tools. The IP Revolution Will Be Televised: IP-based networks are capable of delivering a greater variety of services (e.g., IP TV) faster and at lower cost. OSS vendors will face the challenge of enabling these services. 4G Networks, which are all IP-based, will dramatically increase the speed and flexibility of mobile networks. Although wide deployment is years away, 4G service is already available in select areas such as Baltimore, MD. In addition, Verizon is trialing Long Term Evolution, a 4G technology, this year and is expected to launch service in up to 30 markets in 2010. The Shape of Things to Come: The technological innovation that generated devices such as 27 28 smart-phones, net-books, mobile internet devices and media phones shows no sign of waning and will continue increase the performance requirements for networks and OSSs. Malicious Network Attacks: While the nature of future threats against networks is difficult to predict, it is likely that convergence will bring new security challenges.
Clear and Present Danger: Security Raises Its Profile Criminals, vandals and politically motivated combatants are increasingly targeting telecommunications networks with malicious attacks. On July 8, press reports revealed that government and commercial web sites in the US and South 29 Korea came under a coordinated denial of service attack on 7/4/2009.
For example, covering the 2009 Computex industry conference in Taipei, EEtimes.com reported on Media-phones, next-generation cordless phones with broadband connectivity allowing consumers direct access to internet media content via a color touch screen. EEtimes.com, Media phone builds more hype at Computex 2 June 2009. DSP Groups XpandR chipset targets this nascent market. 28 In Breathing New Life into Voice Service, http://download.intel.com, Intel quotes In-Stat figures sizing the media phone market at annual shipments of 48 million consumer devices and 10 million business devices by 2013. 29 Cyberattacks Jam Government and Commercial Sites in U.S. and South Korea, New York Times, July 8, 2009.
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On July 5, 2009, USA Today.com reported escalating attacks on Twitter, the Web-messaging 30 service . On July 1, 2009, Billing and OSS World cited industry experts raising the alarm at an increase in 31 VoIP fraud . In June 2009 political protests in Iran, the Iranian government and dissidents took their battle to the 32 web. In April and May 2007, during a conflict billed by the New York Times as possibly the first cyberspace war, Estonian computer networks came under a furious and incapacitating month-long 33 attack after an Estonian decision to move a World War II statue. .
The Breakup: Applications and the Network Go Their Separate Ways (But they still have to work together) Our colleagues' note, "The Genie Is Out of the BottleApplications Separating from the Network" (June 11), 34 explores themes related to network-centric computing and horizontal segmentation . The writers argue that network-centric computing is driven by the separation of wireless networks and applications, and they predict that the migration to network-centric computing will drive explosive growth in data traffic and eventually lead to the breakup of vertically integrated service providers. The paper concludes that carriers will take multiple steps to retain control and to ensure that no single supplier dominates the network-centric computing operating system. The Sum of All Fears: Carriers Resist Commoditization We agree with our colleagues that telecom carriers are fearful of devolving into dumb pipes marginalized by the emergence of powerful hardware and e-commerce platforms. Hardware platforms (e.g., Apples iPhone, Amazons Kindle, Echostar/Slingmedias Slingbox) and e-commerce platforms (e.g., iTunes.com, Amazon.com, eBay.com) threaten carriers relationships with their customers by enabling third parties to potentially usurp carriers from their role as gatekeeper controlling access to the customer. OSS and BSS vendors are working to help carriers avoid this inglorious fate. Dumb Pipes, No!; Differently-abled Pipes, Yes! Even as mobile Internet usage accelerates, driven by improved user experience, faster networks and more transparent pricing, end-users are increasingly threatening operators competitive position by abandoning 36 37 operator portals for off-portal sites . We believe operators will work to avoid the dumb pipe fate by remaking themselves into differently-abled pipes that deliver utility to customers, to content and service providers and to advertisers.
35
30 31
Cybercrooks descend on Twitter with spam, attacks, USA Today, July 5, 2009. VoIP Fraud Takes Its Toll, Kelly M. Teal, Billing & OSS World; www.billing world.com. 32 Hackers bring Iran protests to the Internet, Shaya Tayfe Mohajer, Associated Press, June 27, 2009. 33 In Estonia, what may be the first war in cyberspace, New York Times, May 28, 2007, Mark Landler and John Markoff. 34 In other recent telecom-related genie activity, the BBC reports that a genie has been sued for stealing mobile phones among other things, Saudi genie sued for harassment, BBC News, news.bbc.co.uk, 11 July 2007. 35 A phrase borrowed from our colleagues paper, The Genie is Out of the BottleApplications Separating from the Network. 36 IDC discusses this trend in its Openwave sponsored executive brief, A Smarter Pipe: Managing, Monitoring, and Monetizing the Mobile Internet, John Delaney, November 2008. 37 A threatening trend succinctly referenced by the neologism deportalization.
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Effective execution of several activities is critical for the success of operators efforts to remain relevant. We 38 believe OSS and BSS vendors are uniquely positioned to help carriers carry out these activities: Optimizing Internet content for use on mobile devices Collecting data on customer activity Measuring the customer satisfaction with the Internet experience Collecting and analyzing data about customer surfing activity Correlating surfing activity with contextual data such as demographic and location information Compiling surfing data into standard metrics that permit third parties to measure marketing efficacy Compiling user preferences for marketing interaction and content targeting
Protecting against viruses, phishing and other malicious attacks
The Promise of Next-Generation OSS Next-generation OSS provides critical capabilities to service providers. We list some of these capabilities 39 here, with heavy reliance on Jeff Cotrupes paper:
Fast Service Initiation: The ability to instantly and accurately deploy any service to any customer over any network on any device. Automated Service Fulfillment: The ability to activate zero-touch process flows with minimal human intervention. Such automation allows carriers to slash capital expenditures and operating expenses while providing rapid execution and eliminating human error. Facilitate Customer Empowerment: The ability to empower users, allowing them to control services and features. Lower OSS Integration Costs: The ability to lower expenditures for the integration of OSS systems into existing environments. Eliminate Software Silos: The ability to rationalize software resources, eliminating OSS silos" created over time as deployment urgency outweighed integration concerns.
Get Smart: Perspectives on Pipes By choosing the smart path, carriers have opportunities to deliver utility to multiple constituencies in the 40 telecom ecosystem, including their own customers, content and service providers, and advertisers. Smart pipe-enabled carriers can:
38
Obviously, any activity involving the monitoring and/or collection of customer information or data carries privacy risks that should be properly addressed. 39 Jeff Cotrupe, contributing expert to searchtelecom.com, discusses the promise of next-generation OSS in his paper, Tackling next-gen network OSS/BSS challenges, 9/12/2008, searchtelecom.com. 40 Our analysis relies on a framework presented in IDCs executive brief, A Smarter Pipe: Managing, Monitoring, and Monetizing the Mobile Internet, John Delaney, November 2008, sponsored by Openwave.
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Help the carriers' own customers: Locate web content and services Block unwanted content and malicious attacks Resolve problems encountered while using mobile Internet services Help content and service providers: Present providers content and services to end-users Provision customers quickly and efficiently Enhance the user experience Collect payment Help advertisers: Place advertising on customers devices effectively Efficiently target customers and effectively time contacts Monitor, measure and optimize advertising
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Interoperability
Tower of Babel 2.0: Inter-operability Reconciles a Confusion of Protocols Interoperability allows carriers to provide revenue-generating services regardless of a customers location. Interoperability vendors facilitate communication between the diverse systems, protocols and standards emerging from telecommunications evolution. Interoperability vendors also enable carriers to provide users with comprehensive geographic roaming coverage via third- party networks. Interoperability systems provide inter-carrier routing and protocol translation and enable the execution of a number of critical activities, including: Provision of telecommunications services outside of a customers home zone Routing of SMS or MMS messages between networks Number portability Exchange of billing information between carriers Settlement of funds between carriers
Exhibit 6 presents a list of key interoperability vendors. Exhibit 6: Key Interoperability Vendors Key Interoperability Vendors Mach Sybase Telcordia
Evolving Systems Neustar Syniverse Verisign

Spotlight: Syniverse Technology (SVR, Outperform)

Share Price 15 July 2009 Shares Outstanding Market Cap Cash Equivalents Debt 2010E Revenue 2010E Non-GAAP Operating Margin 2010E Non-GAAP EPS $16.79 67.9M $1.1B $174M $505M $500M 33.9% $1.67
Syniverse is a leading provider of mission-critical interoperability services to wireless carriers, facilitating the rapid delivery of multiple services ranging from voice calls to sophisticated data and video services. The company enables mobile roaming, mobile data services, message routing, number portability, and call completion. Key Points 85% of revenues are transaction based Leveraged to rising smart-phone volumes, and adoption of data services 95% US roaming market share and strong global market share. Relationships with over 650 in 140 countries No imminent major contract renewals
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What we have here is failure to communicate As recently as 2003, US visitors to Europe may understandably have been perplexed at the ubiquitous sight of mobile users tapping away at handset keypads. At that time texting had not taken off in the US, and the 42 use of cellular telephones for anything other than conversation was unusual. As the Economist noted : . . . but although texting has become commonplace in Europe and Asia, it has failed to take off in Morse's homeland, America . . . In some parts of Asia, such as Singapore and the Philippines, where large numbers of free messages are thrown in with monthly pricing plans, the number of messages sent per subscriber per month is as high as 200. But the figure for America is just over seven, according to the Cellular Telecommunications Internet Association, an industry body . . . . According to Jim Huseby, Director of Investor Relations at Syniverse Technology, difficulties routing messages between carriers contributed to North Americas delayed adoption of texting. We find support for Mr. Husebys argument in this somewhat long quote from The Guardian: Until recently it has been presumed that text messaging failed to take off in the US because Americans are different and preferred alternatives like instant messaging and PDAs. There is a much simpler explanation. They didn't do it because they couldn't. But now they can, and once they start, they won't find it easy to break the habit. The main obstacle to texting in the US was the lack of interconnections between the mobile phone networks. While Europe and most of Asia had standardised GSM technology (one of the most successful industrial policy decisions in recent memory), the US had multiple systems, including TDMA, CDMA, iDen, as well as GSM, and they didn't communicate with each other very well, if at all. During the past year, that has all changed. There are still dozens of minor networks that haven't changed, but most of the major ones now enable text messages to be sent between them to pay-for services like texting, ring tones, dating, voting and Java games. As a result, the US has now had the Eureka moment that Britain had at the beginning of 1998, when texting suddenly erupted after the operators opened up their networks to each other. Victor Keegan, The Guardian
43
41
Since that time, intermediaries such as Syniverse have demolished the barriers that had retarded US 44 messaging growth, leading to a surge in North American texting volumes . According to the CTIAThe 45 Wireless Association, over 1 trillion SMS messages were sent in the United Stated during 2008, up from 81 billion in 2005. Immediate gratification drives interoperability The underlying driver for interoperability services remains customers desire to access all services, all the time. Interoperability services are required for carriers to provide a full menu of always-on services. Recently, robust adoption of data services has been a welcome development for interoperability vendors.
41 42
Captain, Cool Hand Luke, Warner Brothers/Seven Arts, 1967 No text please, were American, The Economist, 3 April 2003 43 US falls in love with texting, Victor Keegan, 20 February 2004, The Guardian, retrieved from guardian.co.uk. 44 A competing theory attributes delayed North American adoption of texting to lack of awareness of the service among North American consumers. 45 Sourced from CTIA-The Wireless Association, Wireless Quick Facts, www.ctia.org.
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On a related note, in July 2009, the European Union Parliament introduced rules that dramatically cut the data rates wireless carriers are allowed to charge consumers roaming across EU member states46 (in 2007, the EU slashed intra-EU voice rates). We expect lower rates to increase demand for data services; however, carriers may be encouraged to extract pricing concessions from vendors in the service chain. New services drive the need for interoperability Introduction of diverse new services helps sustain the multiplicity of systems and protocols that must exchange information, and vendors providing interoperability services are critical to effectively managing these systems and protocols.
In July 2009, data rates were cut as much as 60%. as described in the European Parliament, press release. Lower Charges for mobile roaming from 1 July, www.europarl.europa.eu/news/ and discussed in the E.U. Parliament Caps Text Roaming Charges, New York Times, April 22, 2009.
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Appendix 1: Billing Primer47

Overview of the Billing Process In a simplified form, billing involves measuring customers service usage, gathering the usage data, applying agreed-upon per-unit charges, applying ancillary charges and/or discounts and preparing a total, which is then presented to the customer for payment. The following simplified billing process highlights key components of a billing platform. Usage Data First Created on the Network When a customer accesses the communication network, usage data is created and stored in various network components such as switches or routers. It is from this data that information about network usage (for example, information about a telephone call) is developed. Collecting and Translating Usage Data: Mediation In a postpaid system, usage data is periodically collected from network elements and aggregated. Because switches, routers and other devices on the network may come from multiple vendors using varying protocols, translating the various pieces of data to a standard format is usually a critical step in the billing process. The collection and translation of this data is known as mediation. The mediation layer or mediation device converts the usage data to a standardized record known as call detail record (CDR). [Note: With the rise of services other than voice, the term usage data record (UDR) is replacing references to CDR]. The CDR contains data regarding specific calls, including information such as origin and destination of call, time the call was made and call duration. Each call or usage event may generate multiple CDRs. Postpaid vs. Prepaid Mediation Under a postpaid billing system, data can be collected and processed at relatively flexible intervals chosen to meet network requirements or some other system need. Under a prepaid system, mediation must be executed in real-time or near real-time in order to permit real-time charging. Applying Applicable Rates: Rating After usage data is aggregated, a rating engine or rating layer applies appropriate charges per unit of use to the usage data in order to calculate the amount to be charged. Applying the applicable rates is known as rating. In some cases, usage must be re-rated in order to incorporate such variables as rate plan changes or volume discounts. Postpaid Rating vs. Prepaid Rating Similar to mediation requirements, under a postpaid billing system, rating can be accomplished at relatively flexible intervals. In fact, under a traditional postpaid billing system, the rating engine processes CDRs in batch mode at scheduled intervals. In contrast, under a prepaid system, rating must be executed in real-time or near real-time. Invoicing The invoicing engine or invoice layer aggregates the various charges that constitute a subscribers bill. These charges may include usage charges, monthly charges and taxes, for example. The invoice engine calculates totals, formats a bill for presentation to the customer, stores customer billing information, adds marketing and other information that is to be sent to the customer and presents the bill and related materials to a delivery facility. The delivery facility may be a printing service, an Internet website or some other channel for providing subscriber access to the bill. Postpaid Systems: Comparatively Flexible Billing Because postpaid customers are billed periodically, billing activities are generally not triggered by customer usage but are scheduled according to the customers billing cycle or other system requirements. These
47
Excerpted from our July 20, 2008 note, Convergence: The Next Billing Frontier.
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comparatively relaxed timing constraints facilitate flexible and complex subscriber agreements. For example, postpaid systems easily incorporate usage discounts, seasonal promotions or complex account hierarchies. Prepaid Systems: Tighter Processing Constraints Prepaid billing, on the other hand, imposes significant timing constraints. A prepaid system must operate in real-time (or near real-time) to verify account standing and account balances, to decrease a users account balance based on the usage units and applicable rates, and to increase a users balance based on funds added. The prepaid system must accomplish these tasks in real time in order to prevent inappropriate service denial, fraud and/or revenue leakage. In general, real-time processing capability entails a trade-off, and prepaid billing systems, while capable of handling tighter processing constraints, are significantly less flexible than postpaid systems. Thus, while postpaid systems easily handle the implementation of billing discounts, promotions and complex account hierarchies, under prepaid systems, such implementation is difficult or impossible. Prepaid Capability: Critical to Convergence Since prepaid billing is a component of a converged system, a converged billing system must meet the realtime processing requirements of a prepaid system. In terms of system components, real-time rating and mediation are critical components of a converged system.
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Appendix 2: OSS Functional Framework48

OSS Functional Areas OSS comprises solutions that address the service and resource management functions in the carrier's back office. We define these as follows: Service Management Service Planning, Creation and Retirement includes software, systems and equipment that manage designs and test the creation and delivery of new services, from the lab to end-user retirement. Service Configuration and Activation deals with the initializing, loading, modifying and tracking of the configuration parameters of required network hardware and software, as well as providing the actual requested service to end-users, including all agreed configuration, quality of service (QOS), features and pricing. Service Inventory Management tracks and manages all service objects, software and assets of installed and "on-hand" services for efficient inventory, procurement, availability and reuse. Service Monitoring encompasses the use of equipment and software that can capture, record and analyze details of the service, equipment and traffic patterns. Normally used in conjunction with problem management. Service Problem Management includes the ability to track and capture problems in the network that are reproducible, and that are identified as defects or anomalies. Service Performance Management tools that support the monitoring and performance issues in developing real-time or near-real-time information for trends and reporting. Service-Level Agreement (SLA) Management tools that support the monitoring of SLA agreements and report violations in the QOS provided to end-users.
Resource Management Network Planning and Engineering includes the steps from network planning to construction (for example, budgeting, procurement, and line and service testing). Network Performance Analysis and Reporting a measuring, analysis, trending and support suite of tools to improve performance of the network, sub-networks and network elements. Deals more with performance than hard faults. Network Capacity Management tools to plan, predict and ensure that network equipment, elements, products and services will be available regardless of peaks, spikes and the planned growth of subscribers and new services. Network Provisioning and Activation includes systems and steps related to the process of implementing orders for customers. Network Configuration Management deals with installing, initializing, loading, modifying and tracking the parameters of network hardware and software. Network Inventory Management tracks and manages network assets. In this ongoing process, installed and "on-hand" network assets are tracked for efficient inventory, procurement, repair and reuse.
48
Gartner model. Gartner Document ID number G00164863. 12 February 2009.
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Network Monitoring tools to support the monitoring and performance issues in developing realtime or near-real-time information for trends and reporting. Network Problem Management addresses the identification, isolation and correction of network problems and faults. Also initiates strong error and alarm characteristics. Workforce Management encompasses activities surrounding work assignment, coordination and tracking. The process involves ensuring that personnel with the appropriate qualifications are given the correct equipment at the right time and place. Examples of IT applications and systems supporting workforce management are dispatch, workflow management and project tracking.
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Appendix 3: BSS Functional Framework 49

BSS Functional Areas Closely linked to OSS, BSS are the systems processes closest to and often interacting with end customers, including, for example, product management, order management, customer management, and revenue management systems. One model of BSS broken down across functional lines defines BSS as covering marketing/sales management, product management, service and resource management, partner/supplier management and enterprise management. Marketing/Sales Management Campaign Management includes the capability to provide marketing analytics and target campaign management and optimization. May include prebuilt campaign templates for customer acquisition, development, re-activation, churn management and so on. Channel Sales Management includes software to manage distributors, dealers, rental organizations and other direct channels.
Product Management Product/Service Catalog Management undertakes functions such as listing products and services, assembling a commercial product hierarchy, and managing business rules relating to offers, upgrades and options. Product Life Cycle Management includes software and systems that manage, design and test the creation and delivery of new products, from the lab to live deployments. Product Performance Management includes software to monitor and report the performance of a product against set criteria.
Customer Management Customer Self-Care Management enables customers to undertake functions like account management, e-shopping and order management, online problem resolution, electronic bill presentment and analysis, and service activation and configuration, without intervention from enterprise employees. Customer Contact, Retention and Loyalty allows an enterprise to track contact with customers and receive a complete history of previous interactions and relevant information, in a bid to increase customer loyalty and aid retention. Order Management captures, authenticates and enables customer orders. Functions may include pre-order feasibility, determining credit authorization, order issuance, order status and tracking, and customer order updates. Customer QOS/SLA Management includes a set of functions that track QOS and performance against SLAs, as well as the management of QOS/SLA violations and the reporting procedures to customers, among other things. Customer Service/Account Problem Resolution acts as the bridge between resource problems (such as network faults) and customer-affecting issues. Customer Billing Management includes the ability to produce timely and accurate invoices, and manage changes to billing accounts and customers' service portfolios. Extra functions may include consolidated bills (fixed and mobile, for example), Multilanguage bills, hierarchy-based bills for corporate use, and identification of targets for marketing or up-selling and cross-selling.
49
Gartner Model. Dataquest Insight: Carriers and Vendors Must Prepare for Further Consolidation in the BSS Market. Document ID G00164864. 12 February 2009.
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Collection and Receivables Management includes functions to handle payments and receivables. Additional functions may include dunning and back-office and call-center support. Invoicing includes functionality to produce bills that include products, quantities and agreed prices for products or services. Bill Design and Formatting software tools that allow users to customize the look and format of a bill, maintain various bill templates and include support for multiple languages.
Service Management Service Rating/Discount Management applies the customer-specific rates and discounts to be applied to basic call detail records, to arrive at the final billable amount to be added to the customer's invoice. Resource Management Real-Time Charging This is significantly different from conventional post-paid mediation systems, since pre-paid systems take usage information direct from the signaling networks, and they monitor in-call usage. To do this, they must acquire and validate events, format events into a commonly formatted event record, identify routing and the relevant rating, and communicate with session control devices. Mediation traditionally provides network to OSS data collection, aggregation, correlation and distribution to downstream systems. The solution may also include an active mediation element that facilitates the interaction, activation and delivery of IP-based services.
Partner/Supplier Management Partner Relationship Management offers a set of functions to manage agreements for services provided by partners. Functions may include revenue settlement, discounting, partner Web self-care and so on. Interconnect Billing includes support for inter-carrier settlement, including rating, revenuesharing and multi-party settlement capability for multiple services.
Enterprise Management Revenue Assurance Management enables an enterprise to identify and prevent revenue leakage across a range of service provider operations and systems. Fraud Management includes functions that help in the detection, management and investigation of fraudulent events in the operators' networks.
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Appendix 4: NC Computing What Is Different This Time?50

There are many different names for network-centric (NC) computing, including the Internet itself, grid computing, cloud computing, software-as-a-service (SaaS), virtual servers and Web 2.0. Regardless of the name used, it is basically networking and sharing computer processing, storage and data, which can be accessed over the Internet using thin devices at the edge of the network. This increases demand for communications connectivity, computer utilization and efficiencies. It also drives the convergence between communications, computing, media and CPE devices, greatly expanding the size of the market. We believe that the added utility from receiving computing/communication capabilities wirelessly on a thin device is the killer application. We believe that in NC computing virtually all devices with a microprocessor will be able to communicate with each other, with most of the interaction being done wirelessly, machine to machine. This process will increase the number of devices connected on a network from the hundreds of millions to the billions. Based on Robert Metcalfes law of network value, when any number, N, of machines is connected to a network, the value created is N-squared. We expect significant value creation from NC computing. The migration to NC computing is a secular shift, once every two to three decades or so. The last computing shift occurred in the mid-1980s (PC), and the one prior to that in the 1960s (mainframe). The migration to network-centric computing should continue to generate strong industry volume growth, but the process also creates a number of long-term uncertainties. Using a historical example, in the early 1980s, when the computer industry was moving from mainframes to PCs, there was frenetic growth, but it was difficult for investors to separate the individual winners from the losers. Then, as now, there was an initial explosive boom-bust period, with the original VisiCalc spreadsheet applications driving an enormous industry investment cycle from 1979 to 1982, with consumers frantically buying Commodores, Apples and other computers. A shakeout period of a few years followed. The next boom cycle started in 1984 with the industrys move toward more graphics-intensive services, such as the Apple Macintosh. Despite the resumption of strong growth, it took several more years (the late 1980s) to sort out the long-term winners from the losers. Exhibit 7: History of NC Computing
Communications Intensity
1920s Mechanical
1940s Analog
1960s Mainframe
1980s PC
2010s NetworkCentric
In 1999-2000, NC computing had a much larger impact on the overall economy (as it will going forward, in our view) than the PC industry had, so there were dozens of companies that were recognized as driving the bubble. Consequently, we had a much larger shakeout. From a customers perspective, AOL, Amazon and Yahoo! were some of the main driving forces of the initial NC computing boom, showing the promise of
50
Source: "The Genie Is Out of the BottleApplications Separating from the Network," June 11, 2009, Oppenheimer & Co.
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future services. This rebound in interest in NC computing was mostly driven by Google and social networking sites such as MySpace. From a pure computing perspective, NC computing will combine the strengths of PC computing (analytical) with mainframe (transactional processing). Computer scientists divide computer processing into two broad functional groups. PCs are great multifunctional tools for analytical computing, which is usually not real, but involves a thought processe.g., building spreadsheets, writing a report, etc. Mainframes (which are still at the heart of most order entry or reservation systems) are optimized for transactional processing, usually in real-time: the sort of call and response data exchange that happens when a travel agent checks a reservation, a supply clerk updates an inventory database, a call center worker enters an order, or a customer browsing the Internet makes an on-line purchase. Network-centric computing can support both transactional and analytical processing (by emulating a PC or a mainframe within the network), at a much lower cost. Some of the cost savings come from utilizing a thin client, which is relatively inexpensive and easy to maintain (also much lighter to transport). We have seen many devices with computing capabilities, but the number of these that are networked was limited to mostly PCs and now smartphones. A thin client could just as easily be a Coke machine, kiosk, cash register, parking meter, etc. Mainframes limited users choices to a few models of rigidly defined dumb terminals. In NC computing, we expect the majority of access devices to be thin and wirelessly connected. Collectively, these thin clients will offer far more flexibility, power, and efficiency than any PC, as long as they have access to the computer capabilities embedded in the network. In this regard, we argue that broadband wireless data is critical to enabling this growth. The entire value of a wireless device is based on its connection to a network. As we see it, every advance made by the wireless data revolution is a step forward for the network-centric revolution as well.
NC Computing Happening Now

The saturation of broadband combined with mobile broadband is why NC computing is starting to take off. In our view, the current transition in the communications industry most closely parallels the changes experienced in the computing industryspecifically, the migration from mainframe to personal computing. The mainframe-to-PC transition divided the industry to wholesale and retail, which is also known as horizontal segmentation. Importantly, this transition resulted in new innovations and grew the overall size of the industry. We have been seeing, and expect to continue to see, a similar trend in NC computing. The Internet, e-mail, IM, search, peer-to-peer, music downloads, and wireless applications have not been created or dominated by incumbent service providers. Exhibit 8: NC Computing Frees Applications from Networks
Present:
Applications tied to specific networks (i.e. video only over cable or airwaves, voice only over PSTN).
Network-centric Computing:
Applications separate from networks, all running over IP.
Broadband is an incremental service on top of core voice or video service.
Broadband is the core service, video and voice are incremental services.
We believe that ultimately incumbent telephone operators around the world will realize the benefits of this structure and voluntarily break their companies into two. One company will contain most of the local
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infrastructure that will be sold in a truly neutral manner to dozens of different application/customer-facing companies, the main one being its former partner. Exhibit 9: Expect Industry to Reorganize Along Horizontal Lines
Customer Customer Customer
Content
Media Provider
e-Commerce
Community Site
VPNs
Corporate Data Center
Storage & Processing
Enhanced Data Services

- Prioritization - Caching - L.D. Transport - Local Wire-line/less Connectivity
Data Centers
ASP
"Network of Networks" Transport Aggregator
Wholesale Networks
Core Network Transport

Vertical Market Application Bundler/Provider
Application Service Providers

Law Firm
Customer
In-Building Network
Customer
Consumer
Customer
Parts Supplier
Customers
We believe the availability of broadband wireless speeds (due to both new technologies and increased spectrum holdings by the carriers), broadband penetration of 90% (indicating that Internet usage and application development have become commonplace), increasing popularity of smartphones (as scale and Moores law drive device efficiency) and substantial subsidies by carriers, and explosive growth of wireless applications (that provide productivity and entertainment) have all fallen in place for NC computing to thrive.
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Appendix 5: Select Company Snapshots51 (Alphabetical)

Accenture Accenture is a leading telecom operations management systems integrator and is one of the top providers of OSS, BSS and next-generation service delivery platform NG SDP solutions. Accenture benefits from its strong consulting and services framework that focuses more on "telco 2.0" activities than traditional telco services. The company's "new product development and innovation" strategic initiative focuses on helping service providers grow through better customer experience and bringing innovative products to market faster and at lower cost and risk. Forming and maintaining partner ecosystems comprising independent software vendors ISVs, network equipment providers NEPs and regional providers is core to Accenture's strategy in this domain. The company has invested to build distributed delivery capabilities in emerging and low-cost markets to reduce associated costs and compete against other emerging providers. However, the company, as compared to peers like IBM, has yet to establish itself in emerging and high-growth markets, especially with respect to managed and outsourcing engagements for telecom operations management systems services. Alcatel-Lucent Communications equipment maker Alcatel-Lucent (ALU) provides a variety of telecom back-office software solutions and professional services, primarily in the operations support system (OSS) space, with additional focus on Tier 2 and Tier 3 in the business support system (BSS) space. The merger of the two companies has left the organization with two parallel charging solutions, both of which have been deployed in dozens of carriers. Traditionally, ALU deployed its charging solutions in conjunction with hardware sales, but it now aims to penetrate the carrier market by offering a stand-alone software-based convergent charging solution. Alcatel Lucent was formed when Alcatel and Lucent Technologies merged on 30 November 2006. It is emerging as a unified vendor for telecommunications equipment and services with a comprehensive telecom operations management systems portfolio, including OSS. The combined company continues to demonstrate worldwide reach, with core markets in Western Europe and North America, and recently good traction in emerging markets. ALU has a broad OSS pre-integrated solution portfolio spanning wireline, wireless, cable and IP segments. However, a number of best-of-breed products are embedded in the portfolio on an OEM basis with leading ISVs and Sis, predominantly Amdocs and Comptel in fulfillment, and IBM in service assurance. Amdocs Amdocs was the first suite vendor in the industry to introduce an end-to-end solution spanning OSS, billing and CRM suites. Its comprehensive suite reaches across service fulfillment, network and service management, workforce management and inventory management, as well as planning and engineering tools. Amdocs particularly accommodates the needs of large carriers that want to deal with a limited number of strategic suppliers. The $3 billion vendor is the preferred, best-in-class billing vendor for many leading carriers around the world. The acquisition of Cramer in 2006 has been an important strategic move to fill its solutions gap in the fulfillment/inventory space. Furthermore, Amdocs intends to reproduce its success as a billing vendor within the OSS space. Since the acquisition, Amdocs has done a good job leveraging the Cramer assets as a leader in next-generation inventory systems. The fact that most carriers around the globe still source best-of-breed integrated solutions, instead of solution silos, has worked against the end-to-end approach. However, Amdocs' modular approach means that the carrier can choose to grow into a larger solution one phase at a time.
51
Source: Oppenheimer & Co., Gartner, and IDC
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Its success in the BSS and OSS markets is closely linked to carriers' vital need for transformation and modernization of existing legacy infrastructures. This requires a great deal of system integration, business consulting and customization expertise. Amdocs derives around 95% of its revenue (including the directory publishing line of business [LOB]) from services. It is involved in many of the major carrier transformation programs worldwide. Amdocs CES 7.5 is a genuine OSS, BSS and CRM software suite with a dedicated road map, which centers on improving the quality of customer experience. During the past six years, Amdocs has invested more than $900 million in developing its software. In addition to its software product, Amdocs offers comprehensive integration services, managed services and business process outsourcing (BPO). The company is dedicated to expanding into business consulting expertise and addresses carrier transformation requirements with programs tailored to the type of carrier. In this context, Amdocs' strategic partnership with IBM, which is based on IBM's strong process-driven implementation framework, should begin to prosper. The acquisition of Jacobs Rimell raised the company's profile in the service fulfillment and subscriber management area, and helped it enter the cable business market. Recent R&D efforts focus on an extension of planning and engineering capabilities, which allow more proactive inventory and network capacity management, as well as service assurance and customer experience management solutions. Moreover, development efforts center on out-of-the box, prepackaged operational product packs (OPPs) that speed up the time to deployment for a process to support a specific service or technology, such as broadband fulfillment. Cerillion UK-based Cerillion was spun off from LogicaCMG in 1999. Its product portfolio covers billing and rating, customer life cycle management, service life cycle management, provisioning, mediation, interconnect billing, self-care, document management and information management. The company recently introduced Cerillion Express for Mobile, an integrated billing and CRM suite that, it claims, can get a mobile operator up and running in 10 weeks. More than half of Cerillion's 30-plus installations are in Western and Eastern Europe, but the firm also has a solid presence in the Americas and the Middle East and Africa. Annual revenue is approximately $20 million, and the company's strategy is to grow organically, rather than through acquisitions. CGI Canadian services firm CGI inherited its BSS solutions suite, Tapestry, through its acquisition of American Management Systems (AMS) in 2004. Tapestry includes a full set of BSS modules, such as customer care, rating, billing and order management. CGI also offers various related solutions, such as interconnect billing (InterSettler), collections (CACS), decision management (Strata), customer delinquency self-cure (Web Promises) and enterprise incentive management (eINcent). CGI generates around $90 million of revenue from BSS, which makes it one of the larger players in the field. The company has about 30 BSS clients, mainly in North America and Western Europe. In the late 1990s, AMS was among the preeminent providers of BSS solutions, counting among its clients Tier 1 carriers such as BellSouth, SNET, Mannesmann Arcor and KPN. AMS's solution has since lost momentum, and CGI is trying to revive it. In recent years, CGI has sold mainly individual modules of the solution, rather than the entire solutions suite. Comarch Comarch is a software house and IT services company based in Poland that specializes in IT solutions for the telecommunications and financial services industries, as well as for government agencies, large enterprises and small and mid-size businesses. The end-to-end Comarch BSS Suite includes natively developed modules for billing and rating, mediation, revenue collection, customer and partner management, sales and marketing, business intelligence, revenue assurance, fraud management, interconnect billing, roaming settlement, voucher management, product catalog and point of sale, among other things.
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The Comarch OSS Suite includes network management, inventory management, trouble-ticketing and fault management modules, among others. The company also offers a compact BSS/OSS/CRM solution for operators that require fast introduction of new services. The Comarch portfolio of products and solutions includes billing, network management, ERP systems, IT security, CRM and loyalty management, electronic data interchange (EDI), sales support, electronic communication and business intelligence. Representative clients include Auchan, Bistream, Bite (Latvia, Lithuania) and Vivatel. Complementary, and other, products include Comarch InterPartner Billing, which provides a multiparty billing capability for interconnect, revenue-sharing and roaming. Comarch Billing System supports carriers in offering next-generation services, including convergent eventdriven billing with flexible event format definitions for services, including a broad range of tariffs and discount schemes. Comarch 3arts provides an end-to-end solution for small and mid-size telecom operators in the areas of authorization, service provisioning, billing, controlling and delivering of Internet protocol (IP) services. Business Process Management enables management and automation of business processes. Product Catalogue is a central repository for defining, storing and managing end-user products. Document Management System supports the management of documents and their flow across an organization. Comptel Comptel, with headquarters in Helsinki, Finland, provides telecom software operations support system (OSS) solutions around the globe. Comptel owns 20% of Tango Telecom and leverages the relationship to partner and integrate complementary components that add solution value. For example, Tango Telecom SCP is integrated as a part of the Comptel offering for prepay and convergent charging. In addition to charging, Comptel's product portfolio includes mediation, provisioning and activation, interconnect billing, inventory and roaming management, data retention, service fulfillment, service catalog, and number and identification management. Comverse Network Systems Comverse Network Systems, a subsidiary of Comverse Technologies, is a leader in providing solutions for real-time billing and charging. In 2005, Comverse acquired the GSS division of CSG Systems, which included the former Kenan billing and customer care products. In 2006, Comverse acquired NetCentrex, which delivered network-based software enabling triple-play and fixed-mobile convergence (FMC) for IPbased environments. Netonomy, which provided customer self-service, bill analysis and point-of-sale solutions, was also acquired in 2006. Comverse has over 100 offices in 40 countries. In addition to billing and charging, Comverse's portfolio includes mobile Internet messaging, IP-based converged communications (voice, video, messaging), short message service (SMS) and multimedia messaging service (MMS), call completion, converged IP Centrex and mobile Internet gateways. Comverse provides services for all aspects of business consulting, implementation, integration and support. It also works with system integrators and localized support in countries around the globe. Additionally, Comverse provides application management for many operators worldwide for billing and other operational services. Comverse leverages a large list of partners that complement and add value to its product portfolio. Convergys Convergys was spun off from Cincinnati Bell in 1998. The company is a U.S.-based provider of business process outsourcing (BPO) services, including billing, human resources administration and customer care. Its HR Solutions unit offers outsourcing of benefits and payroll operations, staffing and training, while its Customer Care division provides both inbound and outbound call handling for sales, marketing and support through its call centers. In addition to bill processing services and provisioning of software to telecommunications companies, Convergys offers many of its software productssuch as billing, mediation and convergent chargingas licensed offerings, leveraging its partners and alliances and its own global field sales.
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Other solutions include Infinys Active Mediation, Infinys Rating and Billing Manager, Infinys Customer Service Manager (CSM) and the Dynamic Decisioning Solution, an Infinys component that allows operators to implement lifetime value policies in real time. Convergys offers professional and consulting services, as well as implementation, operation and support services. Convergys completed its acquisition of Intervoice on 8 September 2008. The combined organization is positioned to bundle IVR and business process outsourcing (BPO) services that complement Convergys's traditional BPO offerings with enhancements to customer and employee interactions. Convergys envisions the evolution of self-service enriching the user experience and resolving problems for the mobile generation. CSG Systems Englewood, CO-based CSG Systems International, Inc. is a leading provider of outsourced solutions that facilitate customer interaction management on behalf of its clients, generating the lions share of its revenues from the North American cable and direct broadcast satellite communications markets. Although CSGS is not a provider of converged billing to telecom service providers, the company is a major force in billing. CSGS estimates that its transactions reach more than half of all US households, and its solutions and applications interact with more than 45 million consumers. In addition, the company processes more than $3 billion in transactions monthly. CSGs solutions also support an increasing number of other industries such as financial services, utilities, telecommunications and home security. CSG Systems enhances its clients ability to rapidly launch new service offerings, improve operational efficiencies and deliver high-quality customer experience. The companys solutions manage key customer interactions such as set-up and activation of accounts, sales support and marketing, order processing, customer billing, production and mailing of monthly invoices, management reporting, electronic presentment, payment of invoices, automated and interactive messaging, and deployment of client technicians to end consumer premises. Ericsson Ericsson is one of the leading suppliers of telecom network equipment, with particular dominance in the wireless space. It provides element management and network management solutions for mobile, broadband, IP, softswitch and optical networking equipment. Most of its back-office solutions reside close to the network. However, it has recently increased its focus on the service layer through a number of acquisitions and developments. In the 1990s, Ericsson introduced an integrated OSS/BSS modular product concept to the market (as part of the joint venture between HP and EricssonEHPT). At that time, the market wasn't ready for the end-to-end story. However, most of the OSS/BSS assets merged into Ericsson, as Ericsson wholly acquired EHPT in 2001. Those former EHPT assets are now distributed throughout Ericsson. Today, the company has a comprehensive service assurance portfolio. Moreover, Ericsson is a fulfillment market leader based on a compelling fulfillment solution that automates end-to-end provisioning and activation processes encompassing subscribers, content and devices. Other fulfillment products, including order management and inventory, are offered through strategic partnerships (for example, with Amdocs). However, the bulk of current OSS revenue is still derived through upgrading legacy OSS and expanding network contracts. On the other hand, much of carriers' new demand for Ericsson OSS solutions has come about as a result of the company's leading position in the emerging market for NG SDP solutions. This has been complemented by wide-ranging OSS/BSS system, network integration and consulting capabilities through its extensive Global Services resources worldwide. Ericsson has a strong legacy in operations support system (OSS) and business support system (BSS) solutions going back to its joint venture with HP (EHPT) in 1993. While some components were sold off after the JV's dissolution, Ericsson maintains a mediation solution that complements its Ericsson Charging System. On top of that, the company provides content management, which opens the door to selling additional convergent charging solutions in addition to the ten already in operation. Charging is a relatively small item on the company's profit and loss statement. Most of Ericsson's more than 150 charging system implementations are already at the latest release and able to cater to carriers offering
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next-generation content services. Ericsson acquired postpaid biller LHS via a tender offer that closed in September 2007 (an additional tender acceptance period required under German takeover law ran until October 8, 2007). This acquisition enables Ericsson to provide an in-house converged billing and charging platform. Eskadenia Software Jordan-based Eskadenia Software was founded in 2000 and is active in the design, development and deployment of a range of software products in telecommunications and enterprise applications. The company has an end-to-end business support system (BSS) software and services portfolio, including billing, interconnect, mediation gateways and customer care management. It also provides enhanced services, such as messaging, e-voucher and voucher management. In addition, Eskadenia provides software products for the insurance and education sectors and offers ERP, CRM and content management systems. Evolving Systems Evolving Systems is a publicly held vendor of products and services for telecommunications operations. The company is headquartered in Englewood, CO. Its 230 employees are based in six offices worldwide and aligned with the companys three major product lines: activation, number portability and mediation. The companys key growth strategy is based on emerging market geographic regions. Evolving Systems key growth product line is the Dynamic SIM Allocation solution, which is primarily a number assignment and activation offering but links tightly with the NumeriTrack and Number Portability Gateway products. FTS Formula Telecom Solutions, with headquarters in Israel, was founded in 1997 and rebranded itself as FTS in early 2008. FTS is known in the marketplace for its Leap Billing, Leap BCE (Business Control Engine) and Leap CRM solutions that offer converged prepaid and postpaid billing, charging, policy management and CRM. FTS also provides business needs analysis consulting, implementation, integration and support services for its solutions. FTS relies on partners to implement and support its complementary products, when there is such a requirement. Leap is an end-to-end BSS suite that appeals mainly to innovative small and mid-size carriers wanting to roll out new product bundles quickly. Support for IMS and SOA also makes it a viable option for large carriers needing an add-on solution that they can quickly integrate with legacy and third-party BSSs and OSSs. HP HP is a major provider of OSS, BSS and next-generation service delivery platform NG SDP solutions and services. HP has re-invigorated its OSS product portfolio, particularly addressing convergence and integration requirements. Its OSS product portfolio encompasses HP software products that address life-cycle management, planning and engineering, fulfillment and assurance. NG OSS Integrated Service Solutions (ISS) are specific product bundles that are tailored to distinct technology areas such as IPTV, IMS and multiprotocol label switching (MPLS). The company's strengths are in network management, and provisioning and activation, each of which accounted for around one-third of its total telecom operations management systems (TOMS) revenue. HP is also gaining market share in the emerging market for NG SDP solutions. HP SDP 2.0 is an end-to-end convergent service delivery platform, which in its core enables abstraction and integration of all services, including network, IT and Web 2.0 services. HP's geographic strength is North America and Western Europe, and income from mobile carriers generates the bulk of the companys revenue. The company has a sizable telecom operations management systems software business; however, this business is small compared to its significant services revenue. HPs products span service usage, charging, revenue assurance, business intelligence and data retention, and intelligence support for improved decision making. Increased revenue from across the core portfolio is being driven by service convergence, risk reduction and compliance requirements from wireless, wireline and broadband operators.
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Intec Telecom UK-headquartered software vendor Intec has a diverse BSS portfolio including products for customer care, charging and billing (Singl.eView), interconnect billing, trading and routing, content partner management, CABS, convergent mediation, service activation, active mediation and error management. Intec provides convergent billing and charging solutions, interconnect billing solutions and mediation solutions. Intec's focus is on providing a total solution to its customers, from the network edge to the user's bill. Convergent charging is a significant part of Intec's business. Intec has over 450 customers worldwide, 90 of which are CABS implementations in the U.S. The company has a wide-ranging sales organization of nearly 200 people, with deep penetration of most major carriers. For implementation, Intec works with major SIs, including Accenture, IBM, EDS, Capgemini, HP, Patni, Satyam and Atos Origin. IBM IBM is a major provider of BSS, OSS and NG SDP solutions, with a strong position in the OSS service assurance and NG SDP spaces, both revenue-wise and in terms of a comprehensive product portfolio. IBM's global telecom operations management systems revenue is relatively diversified, with North America accounting for around 40%, followed by Western Europe with 30% and Asia/Pacific and Japan with around 10% each. IBM's strategy in the telecom operations management systems (TOMS) area is to provide comprehensive solutions, across both IT and operations that enable carriers to speed time to market, ensure quality of service and reduce operational costs. IBM's consultative framework approach, which revolves around operational and business process expertise and which is filled with best-of-class products, makes IBM a leader in the TOMS space. Its product portfolio comprises the whole range of products in the area of service assurance, service and application creation, delivery, management, execution, maintenance and integration as well as network, OSS and third-party abstraction. Moreover, significant services revenues are derived in the OSS fulfillment and BSS domains, often in conjunction with partnership like Alcatel- Lucent, Amdocs and Comverse. IBM's approach to TOMS is business and integration process-led with a focus on transformation and how technology gets applied to transformation efforts. IBM takes a primary role in numerous IT transformation projects worldwide, such as Telstra. This is not surprising, as IBM Global Services has a strong methodology as well as adequate resources in place to support these complex enterprise-wide IT implementations. Moreover, IBM has global solutions labs, with a strong foothold in emerging markets that support development and delivery. With a genuine road map as well as strong investments in TOMS domains, IBM has proven its dedication in this space. The company has pursued numerous complementary acquisitions over recent years, which form a compelling, comprehensive solution suite for customers worldwide that need to enhance and manage their networks and infrastructures, not just in the vertical but also throughout the enterprise. Examples include Micromuse and Vallent in the OSS domain, as well as Cognos in the business intelligence domain.
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Infonova Austrian ISV Infonova started in the early 1990s by developing Videotex, and billing and provisioning for an IP virtual private network (VPN)-based network for Telekom Austria. BearingPoint acquired Infonova in 2003. The company now has revenue of around $30 million. Most of its clients are in Western and Eastern Europe, and there is one customer in Australia. Infonova's Next Generation BSS Release 6 addresses all modules in the order-to-cash value chain, including channel and content management, product and services management, customer management, order management, mediation, rating, billing, bill formatting and accounts receivable. The focus is on next-generation services and service bundles for fixed, mobile and cable TV operators. Infonova cites as a differentiator its BSS virtualization and white-labeling capabilities. Virtualization supports multiple independently operating entities on the same platform. This enables operators to realize significant cost benefits by using a shared BSS platform. White labeling enables each operating entity to have control over its customers, products and branding, while using the same services and processing functions as other entities. Integrated Telecom Solutions ITS is based in Dallas, TX. Founded in 1996, the company focuses on IN-based solutions for global carriers. Its solutions portfolio includes IN mediation, optimal call management, flexible online charging, enhanced calling name, intelligent number translation and virtual mobile exchange. Customers include AT&T, Leap, Verizon Wireless, Telefonica, O2, Rogers Wireless, Vivo, Zain, Orascom Telecom (Mobilink), Oman Mobile and others. Integrated Telecom Solutions ITS is a niche vendor. Major partners include HP, with which ITS has a global reseller relationship, and International Turnkey Systems, which is primarily focused on the Middle East and Africa. LHS LHS was founded in 1990 by former IBM and SAP employees. The LHS Group catered to telecommunications carriers with billing and customer care software that included support and implementation services. In 1992 the company introduced intelligent call center software. In 1998, LHS acquired InfoCellular, a provider of supply chain and customer management software to telecommunication companies. LHS also developed and marketed a smart-card platform, designed to support the downloading of applications and facilitate transfer of data. In 1999, LHS acquired Priority Call Management. LHS was acquired by the European-based technology services company Sema Group in July 2000. In 2007, Ericsson acquired LHS. LHS's portfolio includes BSCS iX and iX Billing. These provide a single engine that creates scheduled or on-demand (real-time) postpaid invoices, prepaid statements and a combination of both, for subscribers that have a mix of prepaid and postpaid services. Mediation iX collects, validates, standardizes and distributes network event and service information. LHS provides services for its own products, but relies on partners to deliver and integrate the solution. Representative clients include Wataniya Telecom (Algeria), SFR (France), Turkcell (Turkey) and Best (Belarus). LHS focuses on product development. LHS has strong relationships with other SIs, including Alcatel-Lucent, Atos Origin and Capgemini. The company expects to translate its relationship with Ericsson into additional wins. MetraTech MetraTech, a privately held company, was founded in 1998 and introduced one of the industry's first XMLbased BSS suites. Today, its MetraNet version 6.0 product is an end-to-end BSS suite that comprises the following modules: MetraBill (rating, charging); MetraPartner (partner settlement); MetraPay (automated credit or debit card payments); MetraCare (customer selfcare); MetraView (statement presentation); MetraConfig (dynamic business modeling); MetraOffer (offer management); MetraControl (user interface); and MetraConnect (a software development kit to access all MetraNet services through Java, C++, ODBC or XML over HTTP). MetraTech cites as its differentiator the ability to openly automate new business models as they emerge without changing the core and prematurely aging its product line. It takes a services-based approach to billing, settlement and customer care that separates business logic from the underlying application servers. The company has around 25 clients, mainly in North America and Western Europe. Some of them are companies outside the telecom industry, including conferencing and mass-transit organizations. It recently signed up some leading operators and non-telecom clients, including Telus for adjunct business services
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billing and Microsoft for software-as-a-service billing. MetraTech has a number of partnerships, including ones with Acision, Logica, Nokia Siemens Networks, TCS and TietoEnator. MIND CTI MIND CTI is a global provider of real-time, product-based mediation, billing and customer care solutions for voice, data, video and content services. MINDBill, MINDs solutions for service providers, enables telecom operators to rapidly deploy services, including IP-based services for mobile, wireline and cable networks. In addition, MIND is a developer of call management systems enabling any organization to manage traditional voice and IP telephony costs, increase employee productivity and optimize network resources. MINDBills modular, product-based approach is designed to provide capacity for immediate revenuegeneration from new technologies and services, while providing a low TCO (total cost of ownership) and fast return on investment. NetCracker The Waltham, MA-based company was acquired by NEC in October 2008. NetCracker provides a complete end-to-end service fulfillment product suite centered on network resource management and inventory, with its service catalog as a competitive differentiator. As opposed to its competitors, NetCracker aims to address systematic problems at the service layer (fulfillment, provisioning and service inventory), managing underlying interdependencies between services and the network, which facilitates faster roll-out of complex, next-generation services. Rather than integrating with other applications and relying on other Sis to deliver solutions, NetCracker's success can be somewhat associated with the direct ownership of the customer relationship. Over the past few years, NetCracker has widened its partner channel network to overcome the revenue confines of its go-it-alone approach. Despite the strong growth and partnerships, NetCracker realized the limitations of its expansion potential and further re-assessed forms of industry cooperation. Neustar Neustar is a publicly held vendor of communications infrastructure solutions. The company is headquartered in Sterling, VA. The company manages shared addressing resourcessuch as telephone numbers, Internet top-level domain names, and U.S. Common Short Codesto ensure that a telephone call or communication session terminates to the correct endpoint. Nokia Siemens Networks Telecom equipment giant Nokia Siemens Networks (NSN) focuses mainly on operations support system (OSS), prepaid, charging and content management solutions. The charge@once solution comes from Siemens and has been used for four convergent charging implementations, among them Telkomsel Indonesia, together with Convergys. The company is well positioned to gain additional converged charging sales though its 95 prepaid clients, which include some of the world's largest mobile carriers (e.g., T-Mobile and Vodafone). NSN will need to reposition its charging solution from that of an add-on to equipment sales to a stand-alone software-based solution. Its content management offering could provide an opportunity to achieve this goal. Openet Openet is a privately held company established in 1999. Key financial investments came from Balderton Capital, SAIC Venture Capital, Innovacom and Cross Atlantic. In 2003, Openet acquired Sepro for its rating capabilities. Openet focuses on providing real-time charging and convergent mediation products and services. Oracle Oracle entered the OSS market by purchasing MetaSolv, a leading service fulfillment provider. The acquisition was an important strategic move for Oracle, enabling it to expand beyond its core billing and
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CRM business into the OSS market. MetaSolv has been a leading provider of activation and provisioning solutions with strong expertise in next-generation networks. This was strengthened through the acquisitions of Orchestream and Nortel's OSS assets, providing further expertise in the IP and wireless domains, respectively. Oracle's acquisition of Netsure expanded its OSS footprint into the network intelligence space, which focuses on the real-time configuration and optimization of network assets. Oracle's acquisition of BEA strengthened its middleware capabilities, complementing Fusion Middleware. Oracle bought Portal Software in 2006 and integrated it into the Oracle Communications Billing and Revenue Management (BRM) portfolio. The acquisition proved a success, as it eliminated financial insecurity and surrounded the core billing solution with a slew of adjacent OSS, CRM, ERP, business intelligence, data management and middleware products. Since the acquisition, Oracle's new BSS contracts have increased significantly, and they include clients outside the telecom industry. Oracle BRM includes modules for real-time rating and charging, offline rating, billing, revenue management, partner relationship management, mediation and roaming (among other things), to provide a multidimensional convergent solution. For these modules, Oracle provides prepackaged integrations to Siebel with CRM capabilities, including product cataloging, sales, self-service, trouble management and other functions, as well as master data management and business intelligence. Orga Systems Orga Systems has provided charging solutions to mobile carriers for more than 20 years. The company focuses on Western and Eastern Europe, Latin America, the Middle East, Africa and Asia. Other than billing and charging, the company's product portfolio includes recharge and self-care solutions. Redknee Redknee is headquartered in Mississauga, Ontario, and was founded in 1999. The company provides converged billing, rating, charging and policy for voice, messaging and next-generation data services to more than 60 carriers in over 40 countries. The company focuses on carriers in developed markets for its value-added services and on carriers in emerging markets for its charging and billing solutions. Sonus Networks Sonus Networks is a vendor of voice infrastructure solutions. The company is headquartered in Westford, MA, and employs approximately 1,000 people worldwide. Corporate customers consist of AT&T, BT, Carphone Warehouse, KDDI, and NTT. Number portability customers typically use the Sonus voice infrastructure solutions for numbering management within the network of their own carrier operations. Subex The Indian revenue assurance vendor, Subex, acquired Canadian vendor Syndesis in 2007. The combined assets inherit strong synergies from a product portfolio perspective. Carriers are likely to work with strategic vendors that are capable of providing a long-term migration plan encompassing the entire order-to-cash process. Syndesis traditionally had a strong presence in the complex area of service provisioning and activation. In 2005, Syndesis acquired the data integrity management startup, CoManage, for expansion beyond its traditional provisioning system sector. Originally targeting competitive local exchange carriers (CLECs) and other carriers in North America, the company has in the past won significant business with major Tier 1 carriers, mainly in North America and Western Europe, such as AT&T, Bell Canada, Cingular, Verizon Business, Qwest, Sprint, Swisscom, Telecom Italia and Telefonica. The company has a track record of deploying provisioning solutions in the IPTV arms of Tier 1 service carriers, and was also selected as the provisioning component of Alcatel-Lucent's IPTV reference architecture. Subex's approach to OSS fulfillment is based on pre-integrated, modularized "out of the box" solutions characterized by flexibility and fast implementation support. Subex's approach is a platform approach, enabling key functionality to be exposed via a platform that can be modified to support a given carriers' business processes.
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Syniverse Syniverse Technologies is a publicly held company headquartered in Tampa, FL. Customers include 650 communications companies in over 120 countries for mobile services interoperability. The company is a major provider of roaming clearinghouse services, financial settlement, mobile data roaming, number portability message routing, call routing and completion. Systor Systor was founded in 1997 and is headquartered in Trondheim, Norway. The companys solutions are software-only solutions developed to run on Unix, Linux, and Windows platforms. The core technology is a transactional database. Customers include telecommunications industry providers such as the national number administrators for Norway, Portugal, and Luxembourg as well as the Norwegian toll system and livestock registry. Tango Telecom Tango Telecom was established in 1999 in Limerick, Ireland. In addition to charging solutions, the company offers high-capacity intelligent short message service (SMS) delivery and SMS terminating services, including SMS anti-spam filtering. Customers include Turkcell (Turkey), Bakrie Telecom (Indonesia), Indosat (Indonesia) and Iusacell (Mexico). Telcordia Headquartered in Piscataway, NJ, Telcordia is one of the world's largest suppliers of OSS solutions and services. Telcordia has a strong telecommunications industry and engineering tradition reaching back to the spin-off from AT&T in 1984. Telcordia was then acquired by Warburg Pincus and Providence Equity Partners in March 2005, ensuring the company's financial viability. Telcordia's solution portfolio spans the complete end-to-end OSS fulfillment and service assurance domains, along with adjunct BSS and SDP products. In 2004, Telcordia filled a major gap in its OSS portfolio through the acquisition of Granite Systems. Telcordia managed to leverage Granite assets successfully, thus remaining one of the leading inventory players, and lately re-engineered its product portfolio, adding a new, centralized product and service catalog solution. The majority of Telcordias business is generated from its North American customer base. Tekelec Tekelec is a vendor of core network and signaling solutions. The company is headquartered in Research Triangle Park, NC, and employs people worldwide. Corporate customers include AT&T America Mviles, Orange Group, T-Mobile and Telecom Italia. Number portability customers include over 85 mobile, wireline, incumbent and competitive SPs in Europe, Latin America and other regions in a total of 28 countries. Key distribution partners include Alcatel-Lucent as well as other network equipment and IT vendors. The companys growth strategy is based on growing its expertise as the supplier of products for the transformation from signaling platforms to IP-based network. In this regard, the number portability business is part of a broader strategy to help SPs migrate and expand existing investments. VoluBill VoluBill was founded in 2001 in Grenoble, France. In addition to "on the network" charging and service control, deep packet inspection, rating, balance management, customer care, self-care, billing and voucher management, VoluBill offers mobile advertising and subscriber usage monitoring solutions. The company acquired Intecs Dynamic Charging Platform assets (formerly Digiquant) and customers.
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TECHNOLOGY
Company Snapshot Index
A Accenture ...................................................... 37 Alcatel-Lucent .............................................. 37 Amdocs .......................................................... 37 C Cerillion .......................................................... 38 CGI ................................................................... 38 Comarch ......................................................... 38 Comptel .......................................................... 39 Comverse Network Systems .................... 39 Convergys ..................................................... 39 CSG Systems ................................................ 40 E Ericsson ......................................................... 40 Eskadenia Software .................................... 41 Evolving Systems ........................................ 41 F FTS .................................................................. 41 H HP .................................................................... 41 I IBM................................................................... 42 Infonova ......................................................... 43 Intec Telecom ............................................... 42 Integrated Telecom Solutions .................. 43 L LHS .................................................................. 43
M MetraTech ......................................................43 MIND CTI ........................................................44 N NetCracker .....................................................44 Neustar ...........................................................44 Nokia Siemens Networks ...........................44 O Openet ............................................................44 Oracle ..............................................................44 Orga Systems ...............................................45 R Redknee .........................................................45 S Sonus Networks ...........................................45 Subex ..............................................................45 Syniverse .......................................................46 Systor ..............................................................46 T Tango Telecom .............................................46 Tekelec ...........................................................46 Telcordia ........................................................46 V VoluBill ...........................................................46
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Other companies mentioned in this report, not covered by Oppenheimer & Co. Company Accenture Admob Alcatel Lucent Aricent Cerillion Technologies CGI Group Clarity Comarch Comptel CVidya Networks Digital Route ECtel Ericsson Eskadenia Evolving Systems Fair Isaac FTS Hewlett Packard Huawei IAC IBM Infonova/Bearing Point Intec Integrated Telecom Solutions LHS Mach Maxbill Metratech MindCTI NetCracker/NEC Nokia Siemens Siemens Openet Telecom Optimal Healthcare Products Oracle Orga Systems Palm, Inc. Peter-Service Redknee Sling Media/EchoStar Parent Ticker Sofrecom Sonus Networks Subex Systor Tango Telecom/ Belgacom Tekelec Telcordia Ulticom Volubill WeDo Technologies Wisor Telecom Zoombak/Liberty Media Parent Ticker TICKER ACN PRIVATE ALU PRIVATE PRIVATE GIB NYWKF.PK CMR/WARSAW CTL1V/FINLAND PRIVATE PRIVATE ECTX ERIC PRIVATE EVOL FIC PRIVATE HPQ PRIVATE IACI IBM BGPTQ/OTCBB (Parent) ITL/LONDON PRIVATE PRIVATE/GERMANY PRIVATE/ PRIVATE PRIVATE MNDO NIPNF.PK (Parent) NOK, SI (Parents) SI PRIVATE PRIVATE ORCL PRIVATE/GERMANY PALM PRIVATE RUSSIA RKN/TORONTO SATS PRIVATE SONS 532348/BOMBAY PRIVATE/NORWAY BELG/EURONEXT (Parent) TKLC PRIVATE ULCM.PK PRIVATE PRIVATE PRIVATE LCAPA Closing Price 7/17/2009 $34.43 $2.51
$8.91 $0.0228 60.70 Polish Zlotys 0.66 Euro
$0.71 $10.04 $2.50 $14.98 $39.98 $16.82 $115.42 $0.14 $80.50 Great Britain Pounds
$0.96 $3.00 $72.75
$21.74 $15.38 $1.29 Canadian Dollars $15.53
$1.54 70.20 Indian Rupees 23.86 Euro $18.72 $1.93
$13.38
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ZTEsoft
PRIVATE
Source: Oppenheimer & Co. Reuters, and Bloomberg Note: Stocks trading under $5 may be considered speculative and suitable for risk-tolerant investors.
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Key Risks to Price Target Stocks trading under $5 may be considered speculative and appropriate for risk-tolerant investors.
Important Disclosures and Certifications

Analyst Certification - The author certifies that this research report accurately states his/her personal views about the subject securities, which are reflected in the ratings as well as in the substance of this report.The author certifies that no part of his/her compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this research report. Potential Conflicts of Interest: Equity research analysts employed by Oppenheimer & Co. Inc. are compensated from revenues generated by the firm including the Oppenheimer & Co. Inc. Investment Banking Department. Research analysts do not receive compensation based upon revenues from specific investment banking transactions. Oppenheimer & Co. Inc. generally prohibits any research analyst and any member of his or her household from executing trades in the securities of a company that such research analyst covers. Additionally, Oppenheimer & Co. Inc. generally prohibits any research analyst from serving as an officer, director or advisory board member of a company that such analyst covers. In addition to 1% ownership positions in covered companies that are required to be specifically disclosed in this report, Oppenheimer & Co. Inc. may have a long position of less than 1% or a short position or deal as principal in the securities discussed herein, related securities or in options, futures or other derivative instruments based thereon. Recipients of this report are advised that any or all of the foregoing arrangements, as well as more specific disclosures set forth below, may at times give rise to potential conflicts of interest.
Important Disclosure Footnotes for Companies Mentioned in this Report that Are Covered by Oppenheimer & Co. Inc:
Stock Prices as of July 20, 2009
Amdocs Ltd. (DOX - NYSE, 23.12, OUTPERFORM) Syniverse Holdings, Inc. (SVR - NYSE, 17.20, OUTPERFORM) Comverse Technology, Inc. (CMVT - OTC PK, 8.20, OUTPERFORM) Convergys Corp. (CVG - NYSE, 9.28, OUTPERFORM) CSG Systems International, Inc (CSGS - OTC, 13.74, PERFORM) Nokia Corporation (NOK - NYSE, 13.39, PERFORM) Oracle Corporation (ORCL - Nasdaq, 21.74, PERFORM) Apple Inc. (AAPL - Nasdaq, 151.75, OUTPERFORM) eBay Inc. (EBAY - Nasdaq, 18.55, PERFORM) Openwave Systems, Inc. (OPWV - Nasdaq, 2.95, PERFORM) DSP Group, Inc. (DSPG - Nasdaq, 7.23, PERFORM) Nice Systems, Ltd. (NICE - OTC, 24.22, OUTPERFORM) Verint Systems (VRNT - OTC, 10.30, OUTPERFORM) VeriSign Inc. (VRSN - OTC, 19.86, OUTPERFORM) NeuStar Inc. (NSR - NYSE, 22.55, PERFORM) Syniverse Holdings, Inc. (SVR - NYSE, 17.20, OUTPERFORM) Sybase, Inc. (SY - NYSE, 32.21, OUTPERFORM) TTI Telecom (TTIL - OTC, 0.90, OUTPERFORM) Amazon.Com, Inc. (AMZN - Nasdaq, 85.85, PERFORM) IAC/InterActiveCorp (IACI - Nasdaq, 16.82, OUTPERFORM) Verizon (VZ - NYSE, 29.59, PERFORM)
All price targets displayed in the chart above are for a 12- to- 18-month period. Prior to March 30, 2004, Oppenheimer & Co. Inc. used 6-, 12-, 12- to 18-, and 12- to 24-month price targets and ranges. For more information about target price histories, please write to Oppenheimer & Co. Inc., 300 Madison Avenue, New York, NY 10017, Attention: Equity Research Department, Business Manager.
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Oppenheimer & Co. Inc. Rating System as of January 14th, 2008: Outperform(O) - Stock expected to outperform the S&P 500 within the next 12-18 months. Perform (P) - Stock expected to perform in line with the S&P 500 within the next 12-18 months. Underperform (U) - Stock expected to underperform the S&P 500 within the next 12-18 months. Not Rated (NR) - Oppenheimer & Co. Inc. does not maintain coverage of the stock or is restricted from doing so due to a potential conflict of interest. Oppenheimer & Co. Inc. Rating System prior to January 14th, 2008: Buy - anticipates appreciation of 10% or more within the next 12 months, and/or a total return of 10% including dividend payments, and/or the ability of the shares to perform better than the leading stock market averages or stocks within its particular industry sector. Neutral - anticipates that the shares will trade at or near their current price and generally in line with the leading market averages due to a perceived absence of strong dynamics that would cause volatility either to the upside or downside, and/or will perform less well than higher rated companies within its peer group. Our readers should be aware that when a rating change occurs to Neutral from Buy, aggressive trading accounts might decide to liquidate their positions to employ the funds elsewhere. Sell - anticipates that the shares will depreciate 10% or more in price within the next 12 months, due to fundamental weakness perceived in the company or for valuation reasons, or are expected to perform significantly worse than equities within the peer group.
Distribution of Ratings/IB Services Firmwide
IB Serv/Past 12 Mos. Rating OUTPERFORM [O] PERFORM [P] UNDERPERFORM [U] Count 339 397 39 Percent 43.70 51.20 5.00 Count 110 119 8 Percent 32.45 29.97 20.51
Although the investment recommendations within the three-tiered, relative stock rating system utilized by Oppenheimer & Co. Inc. do not correlate to buy, hold and sell recommendations, for the purposes of complying with FINRA rules, Oppenheimer & Co. Inc. has assigned buy ratings to securities rated Outperform, hold ratings to securities rated Perform, and sell ratings to securities rated Underperform.
Company Specific Disclosures

Oppenheimer & Co. Inc. expects to receive or intends to seek compensation for investment banking services in the next 3 months from CMVT, ECTX, OPWV, NICE, and TTIL. In the past 12 months Oppenheimer & Co. Inc. or an affiliate has received compensation for non-investment banking services from ECTX and DSPG. In the past 12 months Oppenheimer & Co. Inc. has provided non-investment banking, securities-related services for ECTX
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and DSPG. Oppenheimer & Co. Inc. makes a market in the securities of CMVT, CSGS, ECTX, ERIC, ORCL, AAPL, EBAY, OPWV, DSPG, NICE, VRNT, VRSN, TTIL, AMZN, IACI, PALM, MNDO, LCAPA, LCAPB, LMDIA, and LMDIB.
Additional Information Available Please log on to http://www.opco.com or write to Oppenheimer & Co. Inc., 300 Madison Avenue, New York, NY 10017, Attention: Equity Research Department, Business Manager.
Other Disclosures
This report is issued and approved for distribution by Oppenheimer & Co. Inc., a member of all Principal Exchanges and SIPC. This report is provided, for informational purposes only, to institutional and retail investor clients of Oppenheimer & Co. Inc. and does not constitute an offer or solicitation to buy or sell any securities discussed herein in any jurisdiction where such offer or solicitation would be prohibited. The securities mentioned in this report may not be suitable for all types of investors. This report does not take into account the investment objectives, financial situation or specific needs of any particular client of Oppenheimer & Co. Inc. Recipients should consider this report as only a single factor in making an investment decision and should not rely solely on investment recommendations contained herein, if any, as a substitution for the exercise of independent judgment of the merits and risks of investments. The analyst writing the report is not a person or company with actual, implied or apparent authority to act on behalf of any issuer mentioned in the report. Before making an investment decision with respect to any security recommended in this report, the recipient should consider whether such recommendation is appropriate given the recipient's particular investment needs, objectives and financial circumstances. We recommend that investors independently evaluate particular investments and strategies, and encourage investors to seek the advice of a financial advisor.Oppenheimer & Co. Inc. will not treat non-client recipients as its clients solely by virtue of their receiving this report.Past performance is not a guarantee of future results, and no representation or warranty, express or implied, is made regarding future performance of any security mentioned in this report. The price of the securities mentioned in this report and the income they produce may fluctuate and/or be adversely affected by exchange rates, and investors may realize losses on investments in such securities, including the loss of investment principal. Oppenheimer & Co. Inc. accepts no liability for any loss arising from the use of information contained in this report, except to the extent that liability may arise under specific statutes or regulations applicable to Oppenheimer & Co. Inc.All information, opinions and statistical data contained in this report were obtained or derived from public sources believed to be reliable, but Oppenheimer & Co. Inc. does not represent that any such information, opinion or statistical data is accurate or complete (with the exception of information contained in the Important Disclosures section of this report provided by Oppenheimer & Co. Inc. or individual research analysts), and they should not be relied upon as such. All estimates, opinions and recommendations expressed herein constitute judgments as of the date of this report and are subject to change without notice.Nothing in this report constitutes legal, accounting or tax advice. Since the levels and bases of taxation can change, any reference in this report to the impact of taxation should not be construed as offering tax advice on the tax consequences of investments. As with any investment having potential tax implications, clients should consult with their own independent tax adviser.This report may provide addresses of, or contain hyperlinks to, Internet web sites. Oppenheimer & Co. Inc. has not reviewed the linked Internet web site of any third party and takes no responsibility for the contents thereof. Each such address or hyperlink is provided solely for the recipient's convenience and information, and the content of linked third party web sites is not in any way incorporated into this document. Recipients who choose to access such third-party web sites or follow such hyperlinks do so at their own risk. This report or any portion hereof may not be reprinted, sold, or redistributed without the written consent of Oppenheimer & Co. Inc. Copyright Oppenheimer & Co. Inc. 2009.
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Pay Attention To That Man Behind The Curtain - Network Complex

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Pay Attention To That Man Behind The Curtain - Network Complex

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EQUITY RESEARCH INDUSTRY UPDATE

July 20, 2009

Shaul Eyal 212-667-8411

Hugh Cunningham 212-667-7082

Manish Hemrajani 212 667-5407

It was the best of times, it was the worst of times

BSS: Business Support Systems

Exhibit 1: Telecom Carriers Estimated External BSS Spend 2009-2013 ($Billions)

External BSS Spend

Source: Oppenheimer & Co., Gartner and IDC

Exhibit 2 presents a selection of BSS vendors.

Exhibit 2: Key BSS Vendors Key BSS Vendors

Key BSS Vendors

Spotlight: Amdocs (DOX, Outperform)

Spotlight: NICE Systems (NICE, Outperform)

Source: Oppenheimer& Co. estimates, Reuters market data

Spotlight: Verint Systems (VRNT, Outperform

Spotlight: Comverse Technology (CMVT, Outperform)

Source: Oppenheimer& Co. estimates, Reuters market data

Hierarchy of Consumer Wants13: Consumer Preferences Guide Telecom Evolution

With acknowledgement to Professor Maslow.

Spotlight: CSG Systems (CSGS, Perform)

Key Trends in Consumer Communications

OSS: Operations Support Systems

Exhibit 3: Worldwide OSS Revenue 2006 2013 ($Billions)

Worldwide OSS Revenue 2006-2013 ($Billions)

OSS Revenue ($B)

Source: Oppenheimer & Co., Gartner and IDC

Exhibit 4: Selected OSS Vendors

Key OSS Vendors

Key OSS Vendors Amdocs Ericsson NetCracker Subex

Comarch Hewlett Packard Nokia-Siemens Team Telecom International

Some That Does Not Glister Is Gold

Source: Oppenheimer & Co.

Competition Sharpens the Need for Robust OSS Solutions

Protecting against viruses, phishing and other malicious attacks

Evolving Systems Neustar Syniverse Verisign

Spotlight: Syniverse Technology (SVR, Outperform)

Appendix 1: Billing Primer47

Appendix 2: OSS Functional Framework48

Gartner model. Gartner Document ID number G00164863. 12 February 2009.

Appendix 3: BSS Functional Framework 49

Appendix 4: NC Computing What Is Different This Time?50

Source: Oppenheimer & Co.

NC Computing Happening Now

Broadband is an incremental service on top of core voice or video service.

Source: Oppenheimer & Co.

Corporate Data Center

Storage & Processing

Enhanced Data Services

"Network of Networks" Transport Aggregator

Core Network Transport

Application Service Providers

Appendix 5: Select Company Snapshots51 (Alphabetical)

Source: Oppenheimer & Co., Gartner, and IDC

Company Snapshot Index

$8.91 $0.0228 60.70 Polish Zlotys 0.66 Euro

$0.96 $3.00 $72.75

$21.74 $15.38 $1.29 Canadian Dollars $15.53

$1.54 70.20 Indian Rupees 23.86 Euro $18.72 $1.93

Important Disclosures and Certifications