AsiaInfo tightens its grip on the Chinese OSS/BSS market

Posted by Peter Dykes Wednesday, December 9th, 2009

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Life for Western OSS/BSS vendors looking to take a slice of the Chinese telecoms software market got tougher this week with the news that Chinese vendor AsiaInfo is to buy one of its competitors, Linkage Technologies. Not only does the US$733 million deal remove a potential partner/target for an aspiring player, but it also strengthens AsiaInfo’s largely BSS portfolio with the addition of Linkage’s OSS know-how.

AsiaInfo’s dominance of the Chinese market is impressive. According to Informa Telecoms & Media’s figures, from January 2005 to the end of October 2009, the company has won 132 of a total of 186 publicly-announced contracts, with no other non-Chinese company even breaking into double figures for the whole of that period. Nearest rivals were Amdocs with nine contracts and Intec with four. AsiaInfo has contracts with all China’s parent network operators covering around 26 of their regional subsidiaries, some 16 of which are also customers of Linkage Technologies.

With such a dominant position in the country’s telecoms software market, the acquisition of a relatively minor rival almost seems pointless, but if one considers what is potentially at stake for vendors in this sector, the logic behind the deal becomes clearer. Linkage claims to be in the top five suppliers in most of its market segments which include BSS and CRM, OSS and Business Intelligence (BI). So, while there may be a good deal of overlap between the two companies, the prospect of a well-heeled OSS/BSS vendor or a network equipment supplier acquiring a strong OSS/BSS foothold in the market could have been enough to get AsiaInfo reaching for its chequebook. If such a thing did happen, AsiaInfo’s position could be seriously threatened simply because of the sheer volume of business that is about to erupt on the Chinese telecoms software market.

The fact is that unless the Chinese network operators suddenly get cold feet for some reason, and there is currently nothing to suggest they will, the country’s telecoms software market is looking set for a period of massive investment. The government’s reorganization of the telecoms landscape 18 months ago, coupled with the distribution of 3G licences in January 2009 will create demand for ever more complex billing and revenue assurance systems, CRM, service fulfilment and delivery, greater OSS/BSS integration and tighter control over network resources. According to one source, AsiaInfo has already started implementing new billing and CRM software in 11 provinces with another four in the pipeline for China Mobile. The company is also providing OSS/BSS support for the TD-SCDMA trials and roll-outs currently taking place.

However, the reduction of the number of operators in the Chinese market to three, does present some risks to the likes of AsiaInfo in that any slow-down in investment by one or more of the operators could create serious problems for a vendor relying on so few customers, albeit ones with lots of subsidiaries. Indeed, this potential weakness in the market could be another factor in AsiaInfo’s decision to buy Linkage.

The acquisition of a more rounded portfolio, new financial muscle and a larger workforce could mean AsiaInfo is about to try to realize its recently-stated ambitions of playing in markets beyond that of mainland China, thereby mitigating at least some of the risk it is exposed to in its home market. The deal will leave the merged entity AsiaInfo-Linkage, with some 8,000 employees and a market value of around USD1.8 billion, which is not a bad place to start from.

The deal itself had something of a last-minute air about it with Linkage Technologies calling off an IPO filing made in November 2009 and scheduled for December 9th, within hours of confirming the acquisition on December 7th. Generally, such deals are planned and negotiated well in advance of any public revelations, but maybe AsiaInfo blinked at the last minute, feeling it just couldn’t risk allowing privately-owned Linkage to go public. Alternatively, Linkage might just have been trying to push up the asking price by threatening to go public. It’s impossible to know either way for sure without having a seat on one of the boards; however what is more certain is that the rewards awaiting a dominant player in the Chinese OSS/BSS market will not be small.