A year of serious convergence

2004 In Review: Mergers & Acquisitions

This was the year in which the major telcos got really serious about convergence. First, Telecom bought Gen-i, then Computerland. TelstraClear promptly announced it would be offering its own IT services to customers, and then bought a smaller player, Sytec, which focuses on IP telephony and security.

Telecom shelled out $62.5 million for Gen-i and $26 million for Computerland, whose collective revenues add around $300 million to Telecom’s top line. The purchases also add around 1,000 staff.

TelstraClear paid $12 million for Sytec and its 140 staff. It has been talking to other parties and is expected to make another, larger purchase.

It didn’t take long before Telecom — in the guise of the new brand of Advanced Solutions, Gen-i — was able to clearly demonstrate the ability to cross-leverage telco pricing and services against IT services. Gen-i won a a desktop and server infrastructure outsourcing contract at Genesis Energy, with a bid that was nearly 40% lower than that of the next lowest bidder.

That business model changes the landscape for service companies. The caveat is that Gen-i can deliver within the complexity of a merged IT services and telco environment. Already, there are murmurings that the merger is proving difficult for some staff from the former Gen-i operation.

Computerland will exist in a standalone mode for at least a year, according to the official line. However, Computerworld is aware of at least one recent deal won by Computerland where Gen-i boss Chris Quin was fully involved.

Telcos worldwide are moving to a converged model. In Australia, for example, TelstraClear this year bought a large services company, Kaz.

Put simply, copper in the ground has a limited future with the advent of new technologies such as Voice over IP. The free Skype service is a case in point. Its users worldwide number in the millions.

So, for their own survival, the telcos have to be able to offer value-add services. Buying into IT services companies is one obvious option.

Expect more to come.

That said, monolithic companies are difficult to manage cost-effectively for customers, so these acquisitions may well create opportunity for small, more agile service providers if they can remain competitive in the bid process.

Jackson is a Wellington reporter for Computerworld

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