One employee response to the lay-offs at Amdocs (NYSE: DOX) had been to jump ship in favor of the company's customers. While the numbers aren't large - yet - some of these former employees could pose a major obstacle for the billing giant in obtaining new contracts.
Most of Amdocs’ customers are cellular operators, and most of them have suspended acquisitions for now. Most telecom operators have internal divisions that compete against Amdocs, especially in systems services. The more operators want to freeze acquisitions, the greater their need to strengthen their internal development, maintenance and service divisions.
Instead of paying Amdocs huge amounts per hour of programming, operators have begun hiring away Amdocs’ programmers and engineers for their own internal divisions. The new employees are paid more than at Amdocs, yet cost the operator less. The operators are looking for very specific individuals at Amdocs – the ones with accumulated experience and training, and, most importantly, knowledge of the company's systems.
Meanwhile industry sources expect the wave of lay-offs at Amdocs to continue. This is unquestionably the moment of truth for Amdocs CEO Dov Baharav.
Trust us, it will be all right
From Amdocs employees to customers. Some customers have begun complaining that the company has been overly-reliant on the “Trust us, it will be all right” method.
“Sometimes, it seems that Amdocs is too quick in making promises to close a deal,” said an industry source. “Undoubtedly, its natural that when a company sells a project rather than a product, it should tailor the product development for each customer. In this light, Amdocs is no different than other billing companies. After all, each operator in the telecom sector offers its customers different services and content. The billing supplier therefore has trouble defining what the software will precisely do in advance. In principle, Amdocs comes armed with know-how that enables it to handle a vast amount of data. It is supposed to understand all the services the operator want to provide its customers, and offer solutions.
“The problem is that when Amdocs tells its customer, ‘I know how to make such and such a product because I’ve already installed thousands of such products’, it must clarify that it installed billing systems in thousands of places, and can therefore adapt its products to new demands. It is not supposed to send a message that it has installed the same product thousands of times.
“The moment the customer discovers that the company is having trouble meeting its promises, it can always stop the project mid-way. But that’s not always practical. Then there is the stage of threats of legal action, interminable meetings with the customer and innumerable e-mails full of accusations by the customer.”
The source continued, “On the other hand, Amdocs’ advantage is that it knows how to handle crises better than its competitors. It has a unit called ‘Amdocs User Group’. The moment a customer threatens a lawsuit because time-tables were not met, for example, the unit can immediately send a team with hundreds of members. The team works around-the-clock, writing code, until the crisis is resolved.
”There was the crisis at Nextel Communications (Nasdaq; XETRA:NXTL) for example. A year or two ago, Amdocs was behind in its timetable for the product for Nextel. Nextel threatened that unless Amdocs had the product ready within two weeks, it would file a $1 billion lawsuit and announce that Amdocs did not have a product. That same day, Amdocs flew 200 engineers to Washington who worked around-the-clock, wrote the lines of code, and got through the crisis.”
Another problem is coordinating subprograms. “Amdocs charges $100-150 an hour for programming,” said another industry source. “Only a very experienced programmer can justify this price. Nevertheless, there have already been instances in Europe and Asia when Amdocs sent inexperienced programmers. Customers now demand a list of names of the programmers being sent out to them.”
One of Amdocs’ customers is Israeli cellular operator Pele-Phone. Well-informed sources at Pele-Phone say that Amdocs has missed its deadline for a project and that Clarify’s CRM (customer relations management) system does not properly interface with Amdocs’ billing system.
The CRM system is supposed to enable the billing system to prepare bills that show all of a customer’s special services. This CRM information must update the billing system in real time.
Instead of being done automatically, the Pele-Phone agent must update Amdocs’ billing system. This is not easy, because Amdocs’ system is quite complex. Amdocs is trying to correct the problem and sent scores of engineers from all over Israel to Pele-Phone. For its part, Pele-Phone was not ready to absorb so many engineers. The project meanwhile goes on, but if it fails, Amdocs' image could suffer, especially since Pele-Phone is an Israeli company.
“Documentation is another problem,” said an industry source. “As a rule, before starting each stage of a project, the billing company carefully documents what the software does and how it does it. Amdocs’ documentation tends to be too generalized and non-committal, which causes numerous confrontations and misunderstandings with its customers.
“Consider: when a house is built, the customer specifies that he wants a brown two-storey, five-room house with a basement. Work based on an inaccurate blueprint will result in corrections to the product arising from conditions on the site. The result is that the customer gets a white three-room bungalow with an attic but no basement. When this happens, Amdocs says, ‘What’s the problem? This is a home and you can live in it.’
“In principle, it’s very hard to achieve perfection in a business like Amdocs’, and the company has no choice but to adapt to the conditions in the field. On the other hand, customers have to adjust their demands. This usually involves considerable investment. If the product is constantly changing, customers have to increase their investment, sometimes on a scale not planned for in advance.
“In short, the main problem here is imprecise advance planning. When the planning is imprecise, it isn’t possible to take into account the significance of all the software in advance. This rarely happens at other companies of Amdocs’ size, because when things are done properly in an organized manner there is no need to change the specifications during the work. The situation got so bad that customers began writing the documentation themselves.”
An industry source explained, “Before such a complex software is installed, specification documentation is given to the customer. When installation is complete, tests are run to check whether the specifications have been met. Documentation is a very sensitive stage in a project, because the writer can determine whether the system meets its specifications or not. The moment a complaint is filed, the customer should be able to state precisely which specifications were not met. I assume that Amdocs’ documents are too general, which results in misunderstandings. In such cases, a third party is usually hired to write the documentation, or else customers takes the task upon themselves.
“In the end, it is a matter of timing. During the boom years, Amdocs’ methods were the same, but no one complained. In Amdocs’ favor, it must be said that billing-type transactions are very abstract. It’s very hard for a billing company to explain precisely to the customer what they will get. The industry standard is a minimum 30% rate of failure. Compared to the competition, Amdocs' status isn't at bad at all. Obviously, Amdocs had failures. Billing is not easy. These are very complex, abstract and labor-intensive projects.
“In my opinion, Amdocs’ real problem with its customers right now is that it’s very expensive. It was unable to properly maintain its core products, so it was forced to design solutions in which every little change was carried out separately, at great cost. At a time when the entire telecom sector is suffering from a lack of resources and cash, this is a major problem. Despite everything, I still think that Amdocs is a highly professional company.
“Amdocs’ profit warning is indicative of a very specific telecom situation,” said another source. “Amdocs’ sales cycle is very long compared with other companies. Therefore, just as its decline was slow, its rise will also be very slow. Amdocs is like a large, heavy ship that cannot change direction quickly. I think the company’s revenue will continue to decline in the next two quarters. After all, each quarter end with a quarter of all contracts on average. The only thing that is unclear is why Amdocs’ management didn't realize what was about to happen and lower forecasts in time.
“Despite everything, Amdocs’ capabilities should not be belittled. As the industry leader, it is strong enough to survive the crisis. If you look at its competitors, you’ll notice that a medium-sized billing company like Proxima Systems, which was active for 15 years and had 200 employees, recently closed. Amdocs merely published a profit warning.
“The market is very tough and billing suppliers cannot be blamed for that. All customers are renegotiating contracts and cutting costs. No one complained when money was flush. Everyone was comfortable working with Amdocs. Now that there is no money, telecom operators are blaming the software providers. The dismal truth is that the operators are freezing contracts and canceling agreements, mainly because they have no money. To sum up, Amdocs has a very positive record, and more importantly, it has a major share of the market. Its business situation is therefore greatly affected by the market climate.”
Relocation without compensation
Meanwhile an increasingly large group of Amdocs employees are readying to sue the company in Israel and the US. Many employees who relocated overseas and subsequently laid off now face the severe problem of relocation without compensation.
Laid-off relocated employees have found themselves in a situation in which neither spouse works, since the spouses of Amdocs employees sent overseas resigned or took sabbatical leaves from their jobs in Israel. They have no home in Israel, since they were rented or sold, and their children, if any, will be uprooted from their schools. In cases of children born abroad, there are problems of language, national insurance, etc. Furthermore, all promises of relocation fees have gone up in smoke. Many of these employees now feel that Amdocs has abandoned them, leaving them to cope with their problems alone and without any means to earn a living.
It turns out that when Amdocs employees relocate, the company has them sign a document stipulating that they are on unpaid leave, at which point they cease to receive all social benefits. The employee also agrees to terminate all employer-employee relations.
The moment employees arrive in the foreign country, they sign documents stipulating that they have been rehired by the local Amdocs’ branch, without any of the accumulated seniority at Amdocs Israel. As far as the local branch is concerned, they are new employees. When they are fired, they are ineligible for compensation.
Moreover, the contract signed with Amdocs’ local branch is for a fixed period of 1-2 years. In many cases of a fixed-term work contract, Amdocs is not obligated to pay compensation at the end of the period.
The result is that entire families suddenly find themselves unable to earn a living, while simultaneously having to cope with a complete change in their circumstances. Without compensation, they are unable to reorganize while finding a new job.
Responses
Pele-Phone’s spokeswoman said in response, “Pele-Phone does not comment directly or indirectly about its relations with its suppliers. The company considers its suppliers as full partners in its activities, and Amdocs is unquestionably an important supplier to Pele-Phone.”
Published by Globes [online] - www.globes.co.il - on July 22, 2002