 | |
|||||
|
Choosing Billing Solution or the Importance of Being Earnest
Billing. Computer Telephony. No. 2(26). May 2004
Dmitry Aristarkhov about investment attractiveness of telecommunications. Impressions on the «Investments and Mobile Communications in Russia» conference.
Stereotypes make our life easier. A regular annual «Telecommunication and investment in Russia» conference took place on April 2. The organizers planned a usual tedious event welcoming «Svyazinvest» representatives, experts and analysts, bankers and journalists; they scheduled typical reports, unofficial meetings, coffee breaks and buffets, expecting thank-you-very-much and it-was-nice-meeting-you conversations. Everybody was supposed to put the event out of mind next day.
It didn't work out this time. No matter how hard the organizers tried (they even cancelled a press conference at the last moment), the smooth flow of reports and predefined questions was several times disturbed by the perplexity that the industry players expressed. Too many questions arose concerning the operation of the industry and its flagship, the giant «Svyazinvest». It has a number of reasons, one of them being the fact that up to the moment the conference began nobody knew who would supervise the industry in Fradkov cabinet. Particularly, investment questions stayed unanswered: the company's key development trends in terms of investments, main budget items for the next year, tools of increasing operational profits and many other issues generally subject to discussion at such top-level forums.
We asked President of CBOSS Association Andrey Morozov to share his opinion of the conference. His opinion is the more valuable as CBOSS is one of the largest Russian IT solution providers for telecommunications and is directly interested in the industry development.
A.M.: The main thing that we expected and failed to hear at the conference is whether they are interested in investment growth of the Russian telecommunication industry taken in general. Are producers of telecommunication equipment a part of the telecommunication industry? Definitely. So, why investments to the industry are considered merely as money spent on operators' development? What happens to this money once it is obtained? How is it spent? Investments are made not only in form of sales of shares and lending at an interest. When an operator orders equipment, it invests in the equipment manufacturer. Moreover, on receiving the order, the manufacturer produces and delivers solutions to the operator under commodity credit; the manufacturer also invests in the operator. It is obvious that the industry has its own investment reserves. Home turnover helps to reduce prices. Isn't it more useful to develop such business contacts and relations within the industry and launch our investment drive instead of asking for outside investments? At least, it will attract resources by increasing return on investments. But, so far, the approach employed in the recent «Svyazinvest» tender is dominating — they ask for investments and, at the same time, give these investments away to foreign companies. The only way of returning such investments is rate increase. Instead of investment drive, our not very rich people will face a «price drive», though our government is set to fight poverty.
B:CT: According to opinions expressed in the media, attraction of foreign investors facilitates company capitalization due to increased investment attractiveness. What is your opinion?
A.M.: Let's analyze the situation. For example, you bought an apartment and redecorated it. But, this doesn't mean that the cost of the apartment will increase by the amount you paid for the redecoration even if you had a well-known company do it. Imagine that there exist less costly domestic products of equal quality. If you want to sell your apartment, it will take you long to find somebody who would buy your redecorated overpriced apartment.
What do professionals do when they want to boost investment attractiveness? They don't buy branded solutions. They cut expenses and increase profit, thus demonstrating their investment attractiveness.
In other words, the better you redecorate your apartment at less expenses, the higher is your investment attractiveness.
B:CT: What do you think are the industry opportunities under the present conditions?
A.M.: Like many other Russian software developers, CBOSS prioritizes the development of Russian telecom industry. As I have already said, we are able to compete with our functions, quality, delivery conditions and prices. Our global-level operation proves it. We want equal attitude to our country, because foreign markets take into consideration the home status of any producer. Our position in the international market reminds me a tree with good sprouts that somebody is trying to pull up by the roots. Apparently, it is time for domestic producers to unite into an organization that could voice our urgent interests and protect our rights in public.
REFERENCE:
A session of the tender committee held on March 15, 2004 was aimed to select a provider of CC&BS and general consultant for the project implementation at Svyazinvest subsidiaries.
The tender committee that included representatives of OJSC «Svyazinvest», all interregional subsidiaries and OJSC «Rostelecom» named the following winners:
- IBM Business Consulting Services, a division of IBM EE/A (as general consultant for CC&BS implementation);
- AMDOCS whose proposal provides for implementation of the billing solution by the general contractor IBM BCS (as provider of comprehensive CC&BS solution that is to be implemented at Svyazinvest subsidiaries).
Five hundred million USD for billing is three times larger than the last year's deal with Oracle that caused discontent of minority shareholders. «This time they seem to be satisfied», — says Svetlana Vitkovskaya. «Bearing in mind the last year’s scandal about the contract with Oracle, the holding decided to announce a tender this time.»
«Vedomosti», March 16, 2004.
FACT:
We would like to call your attention to the fact that no Russian developers participated in the tender, which could hardly even happen in a country that observes directions of the President and the Government.
COMMENT:
On April 19, CBOSS Association published on its web site (www.cboss.ru) an official comment on Svyazinvest's choice of billing system supplier.
On March 15, the tender for delivery of customer care and billing system for Svyazinvest subsidiaries was officially completed. As is known, the closed tender with participants selected by an American consulting company chose an American company as the winner. We think that this competition is «unfair and not market-based», as potential suppliers were put under unequal conditions. Not only selection criteria were closed, by also the principles of compiling a list of participants. The fact that our company, a leading Russian supplier in this segment, was not invited to bid in the tender confirms it.
We are amazed at the $500 million price tag for the deal. We could have offered a similar solution for a much lower price and on more attractive «pay as you go» terms. The declared settlement method increases the customer’s risks and, in some cases, leads to increased solution cost. These serious expenses for technologies can tell upon service tariffs, which means another price increase for the population.
Our software is not inferior in functionalities, scalability and reliability. To date, one installation of CBOSS billing and customer care system can serve up to 40 M subscribers. Hundreds of Russian operators and several dozen international companies in 18 countries worldwide have successfully deployed our solutions. Our technologies serve about 40 M subscribers, which exceed the number of Svyazinvest subscribers. The last, but not the least, we have experience in competition with the supplier chosen by Svyazinvest during international projects when our systems were accepted as better deals.
We have rich experience in the Russian and international market. We have powerful production facilities and the largest in Russia commissioning and technical support infrastructure — 2000 qualified workers in Moscow and our own data center that ranks on top of the list of data centers used by software developers in Eastern Europe. Thus, we claim that our guaranteed system installation term would have been several times shorter than that declared in the media.
However, Svyazinvest preferred a foreign company. But, the point at issue is a considerable amount that could have remained in the domestic economy and been used for creating new jobs in hi-tech that is crucial for the country's competitiveness.
We absolutely fail to understand the reasons of this Svyazinvest's decision. Moreover, we think that this decision is not aligned to the strategic priorities of our country development declared at the high official level. We don't understand how our country can triple the GDP and increase competitiveness of NEW science-driven industries, if a state-owned company takes a decision that aim to develop the economies of other countries. The Russian economy also needs investments that can and must be assured by such large orders. In this case, the unpatriotic decision is taken in spite of domestic producers' having proved their expertise and competitiveness.
Telecommunications is a part of the country's strategic infrastructure crucial for the national security. The State Economic Security Strategy of the Russian Federation says that Russia must not let the economy critically depend on import of key types of products that can be produced in the country. The information security doctrine of the Russian Federation names the following security threats: monopolization of Russia's information market; conditions for Russia's increasing technological dependence in the IT sphere; squeeze-out of Russian IT equipment manufacturers from the domestic market. This is to what this deal will lead.
We think that the deal questions the existence of competitive industrial production of IT for telecommunications in Russia, using the Russian money at the same time!
We are a Russian IT company producing solutions that are highly competitive on the international market, where products are judged according to their commercial characteristics. Building our business on the global scale, we are proud to live in Russia, to create hi-tech jobs, to implement projects of targeted social support and to aid in developing science and education system.
We are determined to compete using civil methods — price, quality, reliability, terms and conditions of delivery and payment.
We don't ask for preferences as a domestic manufacturer, though the government promised us this support at the highest official level.
We want fair conditions for MARKET competition in our country.
POINT OF VIEW:
«Why did they prefer to choose a foreign solution rather than a domestic one?» We think that the question is incorrect per se. Being a Russian company, «Berkut» is, of course, more pleased to hear about success of its Russian colleagues. Nevertheless, the telecom solutions market, like many other hi-tech segments, has gone beyond the scope of home countries. Namely, «Berkut» successfully delivers its (made in Russia) solutions to Western Europe, though Europe does have its own developers and vendors. Each client has its own approach to decision-making, as it assesses each solution in terms of its own needs. It's up to the client to decide upon the selection criteria. For example, we have a number of unique solutions. «Berkut» solutions are competitive in Russia and abroad. We think that Russia's intellectual potential and domestic products can take a worthy place in the market«, — says Valentin Orekhov, director of business development of «Berkut».
POINT OF VIEW:
Like any other deal, this deal can be viewed from different standpoints.
Firstly, the contract amount is high enough to wake the interest of specialists as to its feasibility, the more so as Amdocs has installations in Russia. But lack of detailed information and the fact that no tender was announced are, undoubtedly, unpleasant. A couple of years ago I visited a French company Sofrecom that supplied and operated billing systems for many French and foreign telecom operators. They showed me a report that struck me as accurate and abundant with updated information on all the billing systems operating in France. By the way, I saw Amdocs and many other well-known systems there. The report was prepared by an independent consulting company for Sofrecom to participate in a tender announced by a large French operator.
Secondly, the amount of the deal raises a reasonable question about the delivery conditions. Usually, such large deals require offering common shares for goods and services. If it is true, we can understand the words of Svyazinvest top management about the company’s potential investment attractiveness and increased capitalization that Amdocs's participation will bring them. On the other hand, unavailability of such schemes seems conspicuous.
Thirdly, I'd like to touch upon the choice of supplier.
Why Amdocs? It's no wonder. Amdocs has already struck a deal with at least one large mobile operator and has sufficient resources for wider expansion. Nevertheless, there are other suppliers offering well-known solutions.
Fourthly, we can consider the slippery question of information security, though it seems a vague notion in terms of countywide billing systems.
Of course, when virtually the entire Russian PSTN goes under control of foreign specialists, one can't get rid of «bad thoughts» that could turn out to be either heavy legacy of the past or today's reality. I am not a specialist in information security, but I guess that continuous traffic analysis can provide an insight into the company's activity and preferences. As for regions and countries, they give ample scope to imagination. Besides, though Svyazinvest is the dominating operator, it’s not the only operator.
The investment aspect is also worthy of note. According to the existing sources, the deal is estimated at about half a billion US dollars. It makes me think that such an amount could have come in handy to domestic software developers that would have to pay VAT and other taxes, now non-payable due to foreign participation.
I think that eventually a more competitive solution must be selected. On the other hand, Svyazinvest can't distinctly explain why Amdocs solution is attractive due to at least two reasons: firstly, because it just doesn’t want to, secondly, because it can't (or vice versa). It's a shame they wouldn’t do it. I would like to hear their point of view. — Michael Zingerman, President of Automation and Telecommunication Association.
