Despite the communications market climate, Comverse Technology (Nasdaq: CMVT) attended the International Telecommunications Union Telecom World 2003 exhibition in Geneva, as if it were an ordinary telecommunications conference. Comverse set up the largest booth by a participating Israeli company, to demonstrate its determination to move forward.
Comverse CEO Zeev Bregman and chief marketing officer Benny Einhorn are willing to chat with "Globes", although the company instituted a no-interview policy after entering freefall two years ago. There has been slow growth since then, but Comverse maintains the policy. Bregman has no problem talking about the ITU Telecom exhibition, but remains closed mouthed about the company.
Bregman said, "This exhibition really turns the telecom industry into a global village. Communications companies from all over the world are here. In some respects, it's the most egalitarian exhibition around. There are representatives from India, Kenya, China, Russia, and not just Western Europe. One of our cornerstones is that we're a global company. The chance to meet with these companies is very important to us."
Comverse is not in Geneva in order to meet the major US and European operators. Instead, it chose to meet with operators from Africa, South Asia and South America.
As for costs, Bregman and Einhorn have carried out drastic measures. "Our booth is lot more modest than we originally planned. We cut back because we realized we could stand out even with a small investment," notes Bregman.
"Globes": It's said that those companies that haven’t gone out of business until now, due to the crisis, will survive. You've survived and I assume that many of your competitors didn’t.
Einhorn: "In general, business is down. All the suppliers in the communications industry had to make strategic decisions about how to survive. Most decided to reduce their global operations. We decided to stay in every territory worldwide where we did business. We're active in over 100 countries and have offices in 40. We could have done one of two things: either withdraw from territories; or to try to expand our product line to enable us to survive the hard times, even if each product generated fewer sales and smaller profit margins. Comverse now offers all the value added services a communications operator wants and can utilize. We can be found in every sector.
"We designed a advanced new architecture that integrates all these operations. We can go to many places. Especially in those outlying areas where many of our competitors no longer operate, we can offer a full range of services. We supply an end-to-end value added services system."
Comverse doesn’t like the word "survive" to be associated with the company. Comverse claims its existence hasn’t been in question since 1987, and all the talk about survival is untrue. The key question is: What is Comverse's standing vis-à-vis its competitors? Capital spending in the telecom market is not large. Comverse assumes that capital spending is stable at 15-16% of revenue. Comverse serves a market that accounts for 2% of total communications industry expenditure, and believes the value added market will grow. Comverse therefore is trying to plan out how to generate a higher profit in this market. It can also grow at the expense of weakened competitors. These are Comverse's two growth strategies. Everybody's post-traumatic condition generates opportunities for Comverse. It has a presence in a core, rather than niche, business, and it claims that it's winning back customer confidence.
What is post-traumatic business?
Bregman: "Everyone in the industry experienced ten years of accelerated growth, followed by crisis. This was a traumatic crisis for the industry. We also are much more realistic than before the crisis in terms of where we're going and what our capabilities are. We look at our limitations, what our marginal activities are, what we can do and what we can't. Realism is our goal.
"We realize that in economics, it isn’t the dream that wins. We understand that everything must be backed by a real business plan, not with hand-wringing about events that happened during the bubble era. Models are based on a calculation about the value of each subscriber, from which a p/e ratio is derived. Everything must be backed by a business plan that shows a return on the investment. We make very careful studies about which projects we enter and which we don’t. We're less arrogant toward our customers than we used to be; we listen more, and cooperate more with other companies. We have a different pattern of behavior than four years ago."
Einhorn: "Like the market as a whole, from the previous period until now, Comverse fell both in terms of sales and in terms of staff. The numbers are known. But the development staff fell substantially less. In other words, although we cut our staff by 40% to adjust it the market and sales situation, we didn’t cut all the company's departments by the same amount. Our development department was reduced the least. In other words, we preserved our development and investment capabilities, and Comverse now invests disproportionally compared with the investments by our competitors, enabling us to achieve stability. Recently, we've received much more positive analyst reports than in the past."
When asked about Comverse's achievements, the company doesn’t talk about sales and profits, but about its stability in the past year, after its earlier freefall. Comverse now describes its situation as "stability with slow growth."
Einhorn: "During this period, for a full year, we've been able to provide forecasts and meet them. This has also influenced the analysts' attitude toward us and our share price. Our turnover, profitability and forecasts are improving. That means that we can give a number and meet it. Until a year ago, most companies said they lacked the market visibility to provide a forecast."
Comverse didn’t come to ITU World Telecom with a revolutionary message, but an evolutionary one.
Einhorn: "We announced our services platform at the GSM Congress 2003 in Cannes in February. At the ITU World Telecom exhibition, we're presenting a better working model and we've announced our first Israeli customer - Partner Communications (Nasdaq: PTNR; TASE:PTNR; LSE:PCCD). We're now seeing the system take hold, both in terms of interest and sales. Our announcement showed that an Israeli operator was among its buyers."
Is it important for you to have an Israeli customer?
Einhorn: "Absolutely."
At ITU World Telecom, Comverse is also unveiling its Total Communications concept, combining communications products with its Insight open environment, comprising the essentials of next-generation added value services: architecture, services, user experience, multimedia, and real-time billing.
The Total Communications concept includes free choice to call at any time via the most convenient and suitable system and smooth transition between a range of services and technologies, such voice, picture, and touch transmission. Total Communications also enables communications services providers to increase revenue and retain customer loyalty.
Published by Globes [online] - www.globes.co.il - on October 20, 2003