People keep asking me about Subex, the Indian business assurance vendor, like I should know all about its inner workings. Or rather, they ask like I should know about its inner workings and know if there is any truth to this-or-that rumour which floats around those internet chatrooms for people who talk a lot about share prices. I find this odd. Firstly, I do not work for Subex. Although I try to keep an eye on their business, if they intend to keep a secret hidden in their headquarters in Bangalore, I am unlikely to discover the secret from my vantage point in the UK. Secondly, internet gossip about share prices is about as reliable a source of information as that ubiquitous internet spam which begins by saying: ‘here’s one weird tip to…’ and ends by saying something like ‘…remove all wrinkles from a 90 year old face’ or ‘cut your tax bills in half’ or ‘purchase an iPad for less than $10’. If you take internet chat seriously, then you must be in the wrong line of work. Unless you are following my internet chat, in which case you are a very wise person indeed and you are bound to have a successful career. That is because I only tell you good stuff. And that is because, when I want to find out stuff, I ask people who might know the answers. So I asked Subex CEO Surjeet Singh what he thought about his company’s last set of results, and his objectives for the business over the next few years. Here are some excerpts from our conversation…
Eric: Surjeet, you may remember that I already reviewed Subex’s financial results for last year, so I don’t want to discuss numbers, but I’d really like to know which element of last year’s results pleased you most, and where you feel there is greatest room for improvement.
Surjeet: What made me happy was the 24/25% EBITDA margin we attained. It was vital that we steadied the ship and, as part of the turnaround, rapidly moved to a situation where we demonstrated that Subex is a profitable business. So the EBITDA margin pleased me. Where we need to improve is when we compete for business in Europe. We feel we’re dominant in Asia and the Middle East; during the last 14 months we had seven transactions in that part of the world which were in the three-to-five million dollar range. But in Europe we didn’t win as much as expected.
Eric: what’s holding you back in Europe?
Surjeet: Historically Subex has been weaker in Europe. Subex hadn’t developed the same touchpoints with prospective customers in that region. Also, Subex’s poor results in the past, and rumours about our financial status have had a negative impact in Europe which we haven’t experienced elsewhere. Management has focused on making better in-roads into Europe, and I’ve asked Vinod [Kumar, Subex COO] to be hands-on with this. I think we’ve improved a lot in the interim.
Eric: I get the impression that Subex is feeling more optimistic about growth than it has for a while.
Surjeet: We’re running the business with the future in mind, ensuring we’re financially sound and planning to generate a good return for investors. And we’ve had some good news relating to that: Subex received an investment grade credit rating from Fitch. With the future in mind, we’re putting together an advisory board of industry professionals – including ex-CEOs who know telcos and people like that. They will guide us in terms of development and delivery. And we’re managing money internally like we’re managing an investment portfolio, with three-year targets for each element of the portfolio. That way, we use our money wisely, concentrating on the areas where we pursue growth, and not spreading ourselves too thin, trying to do too many different things.
Eric: Which elements of the portfolio are you investing most heavily in?
Surjeet: We have invested heavily in asset assurance, the management of network capex and opex. You already know how important asset assurance is to us; we’ve invested in making it a success. Analytics is also important to our new portfolio. As for vertical expansion, we’re working on a test bed that will see us develop our products for use in utilities. We preferred to concentrate on utilities rather than financial services companies because we feel it will be easiest to convert our tools for use in utilities.
Eric: The possible downside is that utilities are not known as fast-changing businesses.
Surjeet: No, but they have the cash, and we expect there will be plenty of change in utilities during the coming years. They will want to make use of the data they collect.
Eric: You alluded to targets over a timeframe of the next few years. Can you be more specific?
Surjeet: I want Subex to be earning $100mn revenue annually, with a 25% EBITDA margin, within three years from now.
Eric: Can I quote you on that?
Surjeet: Please do.
Eric: We often talk about managed services as being important to how you’ve changed the revenue profile of your business. Long-term managed service contracts makes your revenues more predictable, and less volatile. Subex has increased the share of revenues from managed services to an extent that rivals have not been able to match. Can you comment on why that is?
Surjeet: Customers want bundling, and they want it to be quick and efficient. Subex reset its own revenue cycle to ensure we can quickly and efficiently bundle products and services, in order to please customers. It’s a very important competitive advantage for us.
Eric: To be clear, I sometimes talk about outsourcing as being one end of the spectrum that is labelled ‘managed services’, but when you talk about Subex supplying managed services, you’re not really talking about outsourcing of revenue assurance and fraud management. However, I admit that I previously predicted there would be more outsourcing by this point in time, and I assumed that Subex would take the lead because it would give your business the deepest ties with your customers, and hence the greatest predictability for your revenues. Am I right in thinking you’re not already an outsourced supplier of revenue assurance and fraud management – in the sense of employing the people who do assurance on behalf of the telco? In other words, you’re bundling hardware with software, but the telco still employs the people who do revenue assurance and fraud management for their business. Is that right? Might that change in future?
Surjeet: You’re right. We don’t currently provide a fully outsourced service for revenue assurance or fraud management. When I talk about bundling, I’m talking about bundling hardware and hosting with the software. However, I think we are on an evolutionary path with our customers. When you’ve provided a bundle of software, hardware and hosting for several years, and you provide that bundle smoothly and efficiently, the customer becomes more open to the option of full outsourcing. Full outsourcing is something I could envisage happening at the level of a telecoms group, and I foresee it will be viable to make such an outsourcing deal in the next year or 18 months. Previously groups have tended to have a variety of fraud management and revenue assurance suppliers across their entities, but we’re reaching a stage where Subex is the supplier to every subsidiary of a group. That makes it far more viable to do outsourcing at group level.
Eric: So you’re suggesting that the trend towards shared service centres in telecoms groups is also a potential enabler for outsourcing? If a group runs a shared service centre for revenue assurance or fraud management, where it’s pooling work done on behalf of all the operating companies, then that lends itself to the possibility of simply outsourcing the work of the shared service centre?
Surjeet: That’s right. We don’t see the trend towards shared service centres as a threat to Subex’s business model, because it also increases the opportunity to outsource. If a group can decide to implement a shared service centre for its revenue assurance and fraud management, it creates a real possibility that they might do a 10-year deal to outsource that function, allowing Subex to take care of every aspect of the function, from the software that is used, to the payroll for the staff who work in that team.
Eric: A 10-year outsourcing deal? So you’re really thinking long-term about Subex’s future revenues.
Surjeet: We’re really thinking that far ahead.