Eric Goodness

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Eric Goodness
Research VP
10 years at Gartner
21 years IT industry

Eric Goodness is a vice president in Gartner Research, where he is the agenda manager and customer lead for Managed Services in the Communications sector. His research and advisory services focus on customer and vendor outsourcing and IT services… Read Full Bio

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Consolidation At Last! Vodafone Acquires TnT Expense Management and Quickcomm

by Eric Goodness  |  October 8, 2010  |  11 Comments

This morning, Vodafone Global Enterprise made a strong push for market leadership when it announced it has acquired two, not one –  but two,  TEM vendors – TnT and Quickcomm.

Could this be the beginning of a wave of consolidation in the Telecom Expense Management (TEM) market?  I sure hope so.

Quickcomm has operated primarily as a TEM application vendor.  The company has cemented significant partnerships over the past few years (including Vodafone).  TnT Expense Management is a services focused company providing process outsourcing services to large multinational companies.  Each company brings good international experience to Vodafone.  Quickcomm was founded in Australia and maintains offices in Australia, New York and London.   TnT over the past 18 months has expanded its sales and service presence in Asia and Europe (finding notable success in France and Germany).  TnT received the highest customer satisfaction ratings in Gartner’s 2009 TEM Marketscope.

Although Vodafone already managed a growing and successful TEM service portfolio, which started with the launch of Vodafone Telecoms Management last year, the acquisitions allow Vodafone to provide its customers  and partners more varied and flexible TEM solutions; including software which appeals to how non-multinational companies acquire TEM  capabilities in European and Asian markets (while still embryonic, Latin American markets seem to favor a process outsourcing approach for TEM).

The specifics of the deal were not announced.  Combined, Gartner estimates that the two acquired TEM companies generate under $25M in revenue.  Based on the estimated 2009 revenue of the acquired companies, their trended growth over the past 36 months as well as considering comparable TEM acquisitions, Gartner estimates that the two companies were likely acquired by Vodafone for less than $40 million (US).

The acquisition of these two TEM companies reinforces the importance of Telecom Expense Management to large multinational companies – the core market served by Vodafone Global Enterprise.  Telecom expense management is component of the larger communications outsourcing and professional services (COPS) market.  While TEM revenue is a very small portion of the revenue generated in the COPS market, TEM is a growing point of focus by users in recently signed communications outsourcing deals as well as in ongoing pipeline opportunities.  For vendors, the user goodwill that TEM generates from cost avoidance is an important pull-through mechanism for additional revenue opportunities by outsourcers and consultants.

Telecom expense management, when practiced well,  allows a company to discern and enumerate how it consumes communications to support its business.  Companies that use TEM tools or services are able to build fact-based business cases to migrate towards unified communications. Because of TEM, the communications segment of IT spend will achieve a level of cost effectiveness, visibility and transparency – such as realtime spend and TCO per user across fixed and mobile modalities – that other IT segments will struggle with for years to come.

My hope is that Vodafone’s acquisitions provide market validation for other Communications Service Providers and IT-Business Process Outsourcers (onshore as well as offshore) to solicit board approval for their own acquisitions.  Private labeling and passing through smaller pure-play TEM vendors is far superior to building new capabilities organically; however, it is not a viable long term strategy.  In North America, TEM is an outsourcing market.  It is transitioning to such in Europe and Asia. Unfortunately, too many TEM companies have little to no outsourcing experience.  The current TEM market is being held back by the immaturity of many its practitioners.   More acquisitions and mergers, by small and large IT services companies, is exactly what the TEM market requires because that is where the future of TEM lies.

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  • 3 Nick   October 8, 2010 at 10:21 am

    Just a little less than 40MM… more like 9.7MM…

  • 4 Consolidation At Last! Vodafone Acquires TnT Expense Management … | Telecom Regulation   October 8, 2010 at 10:25 am

    [...] Read the original post: Consolidation At Last! Vodafone Acquires TnT Expense Management … [...]

  • 5 Eric Goodness   October 8, 2010 at 10:36 am

    Nick,
    The published figures that have been going around don’t reflect the final acquisition price. I’ve had that confirmed by Vodafone.

  • 6 Nick   October 8, 2010 at 10:38 am

    Eric – understood. Despite that, you would estimate that Voda took on $30MM in debt across the 2 companies, that still doesn’t sound right.

  • 7 Eric Goodness   October 8, 2010 at 10:47 am

    Appreciate the feedback. Perhaps it is a bit excessive. I’m not sure $9.7M, on approximately @$20M+ in recurring revenue, between two profitable businesses with minimal external capital makes sense either. There may be truth in the middle.

  • 8 Dave   October 8, 2010 at 11:15 am

    What is your view on the apparent conflict of interest that this presents companies that rely on their TEM providers to supply unbiased review of industry rates. How will other providers feel about their pricing being accessible by a competitor?

  • 9 Eric Goodness   October 8, 2010 at 12:06 pm

    For large multinationals (MNCs) with a broad and diverse supplier base; I don’t see the conflict. TEM is an outsourcing market. Much in the same way that IBM is trusted to outsource datacenters that include HP and Dell infrastructure. I can point to large MNCs that have a CSP providing TEM services (including mobile device management) and their carrier is negotiating against global competitors as well as becoming the network service customer of record (contract novation). I’m not saying there are no conflicts but conflicts are relative to the size of the company.

  • 10 Ryan   October 11, 2010 at 2:59 pm

    Furthering the conflict of interest argument, doesn’t having a carrier services arm supply TEM conflict with a broad value proposition around optimizing the environment? Wouldn’t Vodafone’s interests only be aligned if they have outsourced the lions share of the environment, novated contracts etc.? Otherwise I find it hard to believe that the TEM program would produce outputs that negatively impacted Vodafone’s own core services revenue. If they’ve outsourced a significant portion of the environment and need to optimize to deliver margins then TEM becomes an internal utility to achieve that end and the customer would care less.

  • 11 Eric Goodness   October 11, 2010 at 3:11 pm

    Hi,
    A few responses to your statements/questions:

    Ryan: Furthering the conflict of interest argument, doesn’t having a carrier services arm supply TEM conflict with a broad value proposition around optimizing the environment?

    EFG: If the customer contracts with only Vodafone for network services, or the majority are Vodafone service contracts, I think there is a reasonable perception of conflict.

    Ryan: Wouldn’t Vodafone’s interests only be aligned if they have outsourced the lions share of the environment, novated contracts etc.?

    Otherwise I find it hard to believe that the TEM program would produce outputs that negatively impacted Vodafone’s own core services revenue. If they’ve outsourced a significant portion of the environment and need to optimize to deliver margins then TEM becomes an internal utility to achieve that end and the customer would care less.

    EFG: Yes, exactly. This broad value proposition is where only a few larger CSPs can operate. The acquisition is important because for those scenarios where Vodafone doesn’t provide such broad value, they can create an indirect channel for their partners to leverage their acquired SW. I can point to a few carriers for years that have been providing their biggest customers access to TEM SW at no charge (they subsidized it by paying TEM vendors). A loyalty program of sorts.