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Tangoe Acquires IBM’s Rivermine Telecom Expense Management Business

By Eric Goodness | June 03, 2015 | 1 Comment

TEMtelecom expense managementITFM

On June 1st, Tangoe announced that that the company closed its acquisition of IBM’s Rivermine Telecom Expense Management (TEM) business.

The IBM Rivermine business, acquired through the acquisition of Emptoris, provides fixed and mobile telecom expense management software and related services.  The acquisition gives Tangoe one of only a very few installed bases – that are comprised of global, blue chip clients – outside of its own portfolio of customers.  Gartner estimates that Tangoe made the acquisition for a multiple slightly above one time revenue.

The market for telecom expense management is a highly competitive landscape in terms of the number of providers; however, for large multinational companies that are looking to create a global standard for TEM software and services there is Tangoe and few others (e.g. Vodafone Global Enterprise, Dimension Data and Accenture immediately come to mind).  Even a few TEM roll-up efforts by private equity investors have either lost steam and/or visibility in the market.

IBM’s exit from the TEM market speaks volumes to how difficult it can be to create a fast growing and high margin TEM software and service business.  Today, CSPs and IT Outsourcers are not going to build a TEM service delivery business.  Instead, these service providers are going to private label one  or more trusted regional providers.  But make no mistake, more CSPs and IT outsourcers will bring TEM services to market and it is within this strategy that we are seeing the world’s largest TEM deals being bundled into large network outsourcing agreements.  This means most TEM providers never know about the largest opportunities unless they are invited to participate by a partner or when they read about the deals in their Google News feed.

These market challenges have created confusion in the go-to-market strategies of hundreds of TEM providers.  Today, most TEM providers are more focused on on growing into broader IT Financial Management (ITFM) services instead of growing/consolidating the market for which their telecom knowledge is their most defensible moat against competitive entry.   Given Tangoe’s dominance in the TEM market, it makes sense to expand into broader ITFM.

The challenge for Enterprises moving forward is how to engage the market of providers for global TEM solutions in a shrinking field of global expertise.  I’m always happy to have that conversation.

Let me know what you think.

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1 Comment

  • It’s an interesting debate and one that must also differentiate between Global TEM and Global Network Services and local country services.

    Tangoe are a clear and deserved leader in the provision of independent global TEM services. Global TEM is both costly and complex to deliver across multiple countries, currencies, tax regimes and suppliers. So for multi-national organisations that have not adopted a global managed network service or partner and need to manage many different provider; then the requirement for an independent TEM provider with these capabilities, means the Tangoe are likely to dominate this space for the foreseeable future. Especially if competitors continue to exit the market, or diversify or even give up trying to expand their capabilities to a global level.

    Where organisations choose to work with a Global Managed Network Provider, for instance Vodafone Global, the landscape and business drivers for the organisation start to subtly change. The role of the TEM solution becomes more about the integration of TEM processes into the provision and support of the Global Network Services, and less about the value of independence.

    The more integrated, the higher the potential to streamline administration and to manage costs, usage, inventory etc. For instance, an integrated TEM provider could in theory have real time access to network level usage data and billing, that an independent TEM provider could never hope to access, and only report upon weeks after the event when the billing arrives. Imagine a network TEM team alerting you to excess roaming usage in real time, rather than after they have made thousands of dollars from the event!

    In this capacity a comprehensive in house carrier TEM function could; if strategically integrated to the underlying networks; fulfil a highly efficient operational role/function for the customer and provide a differentiated form of competition to leaders Tangoe. Especially when the global network provider achieves a high share of the customer’s telecoms services on their own footprint of network services (rather than managing 3rd party network).

    The combined Global TEM and Network play also has the commercial advantage of being able to subsidise the TEM element of the services from the overall value of the contract and from the operation support savings that come from getting the administration right. This must sit well for CFO’s that otherwise have to pay a third party TEM provider additionally to their “managed network services”. The unfortunate truth of TEM is that it is one of diminishing returns, where ultimately the ongoing savings fall below the TEM fee, and for this reason integrated TEM and Network has got the long term upper hand vs. traditional TEM propositions.

    At a local level things change again. At Utelize, we see the role of the independent TEM provider coming under much greater threat from supplier self service portals and in combined TEM and Network services. At a local country level (especially in Europe) it’s much easier for the customer to source their full telecoms needs from a single provider. And therefore having integrated TEM service delivered as part of the solution rather than being an additional expense is an attractive proposition, especially for those organisations that don’t currently have a TEM budget.

    Of course, how far a combined network/TEM play be trusted to really act in the customer’s best interests is debatable. There is an inherent conflict of interests from such a combination. For the more effective the TEM element, the less profitable the network part becomes. And we think that the network margins will ultimately be protected over the TEM returns.

    And so the compromise of integrated TEM and Network will always be that the truly proactive aspects of TEM, that can drive out the most savings and returns (or erode the carrier margins, depending on which side of the supply fence you are sitting on), will be sacrificed along the way. And it’s simply naive to think that an integrated network and TEM will ever provide truly independent procurement and technology advice, against the interests of their network investments.

    So for organisations that simply want effective telecoms financial administration, an accurate inventory and a core level of usage management; then the integrated network and TEM solution must offer a really compelling commercial option to paying an independent TEM provider to do the same work.

    So for the independent TEM provider to exist, they have to change. They can diversify to ITFM; or they can change their value proposition. To continue to exist outside of the global opportunities, independent TEM must evolve into Telecom Lifecycle Management. Where the TEM provider supports the wider scope of helpdesk, user support, procurement and even provide strategy and technology advice. All based on the wealth of usage and billing data available to them from supporting the TEM processes. That way there is long term value in the proposition, long after the billing and inventory are accurate and the traditional TEM returns have diminished.

    At Utelize we’re taking a different and untested route. We’re evolving our TEM proposition to include deliver the network service. However unlike the combined Network/TEM propositions; we have removed the conflict of interests up front.

    Instead of making margin on the delivery of network services, our customers pay the same wholesale rates that we buy at. Not only removing the conflict, but also simplifying the whole TEM and billing process. Imagine a network with just one tariff to check and manage – the traditional TEM proposition is going to be a hard sell there! Instead we make our money as an independent TEM provider; still charging an agreed monthly management fee (sometimes with performance fee). However that free can almost always be funded from the additional long term savings that buying wholesale brings. We’re also able to still manage any other provider in a traditional TEM way, as we know our own wholesale agreements will never work for everyone. And with the additional layer of integration to the network that comes from working this way, we can more effectively manage and monitor the services to better improve the support we provide our customers.
    It’ll probably never catch on; but we think it’s the future of TEM at a local country level. TEM as we know it is already dead and IBM won’t be the last to exit. It’s time to change the rules, so TEM can live on.