Subex Roundup: Sales, Debt and Rumours

There has been a flurry of news from Subex, the Indian RA giant, since they released version 5 of their ROC software. Within the string of positives and negatives, the themes remain largely unchanged from what we have long known about Subex. On one hand, Subex continues to announce new deals with customers. On the other hand, the overhang from their Foreign Currency Convertible Bonds (FCCBs) continues to plague them. Subex has successfully renegotiated their finances before, so there is reason for optimism. However, the context for analysing Subex’s performance has been altered by adverse news about some of their rivals. Recent months have seen the leaking of bad news about two Indian vendors, first Teleonto, then Connectiva. Whilst Subex is much larger and more mature, the saying ‘misery loves company’ might explain some of the rumours currently circulating the industry. Subex has taken on former Connectiva employees, but there are signs of a negative and twitchy mood spreading amongst industry insiders. In such an environment, loose talk about cashflow problems or potential takeovers can spread like wildfire, and Subex’s FCCB difficulties will inevitably fan the flames. But rumours are rumours and should not be repeated as fact. Here, then, is a brief summary of the recent Subex news.


Subex has made three sales announcements within the space of two weeks:

The exact value of the deals is unknown, but two of them are described as being ‘multi-million’. These press releases follow a familiar pattern from Subex, which has kept on announcing new contracts even whilst there has been a decline in similar announcements from some of its rivals.


The maturity of Subex’s existing FCCB’s were extended to July 9th; see here. Subex has faced strong headwinds from currency and stock markets, creating a double-whammy of a share price too low to justify the conversion of FCCBs into equity, and inadequate cash to redeem the FCCBs on their due date. Despite the sale of the former Syndesis division, and signs of resilient operating profits, Subex has needed extra time to negotiate a restructuring. Following the precedent negotiated in a 2009 debt-equity swap, the deal will likely see bondholders accept new shares in exchange for seeing their bonds sliced in value and their repayment postponed for another 3 to 5 years.

The Long View

Markets go up and down, and deals come and go. Now might be a good time to remember some wise words from the ‘sage of Omaha’, Warren Buffett:

Occasional outbreaks of those two super-contagious diseases, fear and greed, will forever occur in the investment community. The timing of these epidemics is equally unpredictable, both as to duration and degree. Therefore we never try to anticipate the arrival or departure of either. We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.

talkRA has always tried to look beyond the fads of fear and greed that have beset the revenue assurance industry. We have challenged the more extravagant estimates of the growth and value of the RA sector, including those that originated with Subex. talkRA first highlighted Subex’s FCCB risks all the way back in 2008. Now it feels like public over-optimism in the RA market is giving way to an excess of private pessimism. If Subex keeps making sales like it seems to be, and keeps on generating cash, as it seems to be, then the business is fundamentally sound and investors will continue to back it. What is happening is the substitution of a more long-term and realistic outlook in place of the rapid-return, high-risk style of investment which fuelled the rise of RA vendors. In the case of Subex, this will occur somewhat in public, as bondholders will give up on nominal but unrealizable promises in order to recoup more in the long run, and as the original equity holders see their share diluted. Other companies will and should go through a similar process to align expectations to what the market can actually deliver – though the realignment may not be so apparent. Realism is a good thing, even when it means lowering expectations. From the data available, Subex is a solid business which looks likely to generate worthwhile profits in future. Now is not the time for panic, and I anticipate that Subex’s bondholders will share that view.

But what about takeovers? Might Subex be the target for another firm? I doubt it, though it as always a possibility. After all, takeovers occur when the seller’s price matches the buyer’s offer, and nobody can rule out an unexpected or irrational offer. However, there are several factors that count against Subex becoming a target. For a start, Subex is too big to be easily digested by any of its peers. Buying Subex’s shares would also miss the point – the bondholders have effective control over Subex’s fate, at least for the immediate future. A much larger firm might see opportunities to enter into this specialized market, but the difficulties currently experienced by other RA vendors would likely discourage activity until the competitive landscape is clearer. Also, RA products continue to be too much of a niche play to yield obvious synergies for other software firms or for more network-oriented suppliers. There are likely to be easier and cheaper ways for a newbie firm to dabble in RA, or for a current player to grow market share. So I expect the next few years for Subex will look much like the last few: they will keep on grinding out ways to enhance profits, whilst remaining a big fish within RA’s small pond.

Eric Priezkalns
Eric Priezkalns
Eric is the Editor of Commsrisk. Look here for more about the history of Commsrisk and the role played by Eric.

Eric is also the Chief Executive of the Risk & Assurance Group (RAG), a global association of professionals working in risk management and business assurance for communications providers.

Previously Eric was Director of Risk Management for Qatar Telecom and he has worked with Cable & Wireless, T‑Mobile, Sky, Worldcom and other telcos. He was lead author of Revenue Assurance: Expert Opinions for Communications Providers, published by CRC Press. He is a qualified chartered accountant, with degrees in information systems, and in mathematics and philosophy.

2 Comments on "Subex Roundup: Sales, Debt and Rumours"

  1. I believe that the recent PRs from Subex are just a way to flood the market and industry followers with positive announcements as a distraction to avoid the heat of the financial turmoil.
    Subex’s financials is not the only thing at risk, due the the massive layoffs in Subex offices, including Bangalore, APAC and Americas, the company will loose its capability to improve and support existing products, product strategy and new products developments will not get the priority deserved for a leading company.
    Did I mentioned that customer support and delivery teams are spread too thin and can not take good care of existing customers?
    The syndesis acquisition was a terrible decision that dragged Subex in only one direction: down.
    Historians will agree that this was the first step that triggered the fall of the Subex empire.

    • @ Rohit S, I will wade into this, though I am conscious that people may (falsely) accuse me of becoming a PR rep for Subex – hopefully some will remember all the negative things I wrote about them in the past, and give me credit for being candid no matter what anyone else thinks. It is true that all vendors want to create positive spin for themselves, and that is no less true when times are tough. However, I doubt that Subex has fabricated its sales announcements. The timing of sales announcements can be artfully managed, but only out-and-out liars fake sales, and Subex’s financials are sufficiently public that we can all see if revenue figures are plunging. That Subex has the right baseline for its operating costs is a more serious concern. In previous years I observed how Subex’s management team had shaved costs to deliver a fundamentally profitable business. Costs can only be cut so far without endangering revenues and profits. I cannot judge if costs are being driven too low in Subex. What I do know is that investors sometimes fail to be rational; cutting costs may lead to more cash in the short run, at the expense of greatly reduced cash in the long run. The impatience of investors is understandable, but as you note, cost-cutting may have undesirable consequences which undermine Subex’s competitiveness. That said, even an underweight Subex has more mass than many nominal rivals, and they will still land their share of knockout punches when sparring for customers. Instead of comparing Subex today to Subex yesterday, the important comparison would be between the current state of Subex and its competitors. And the problem is that we don’t have enough data! Subex’s financials may not be rosy, but in a fight for survival, what matters is who stays on their feet the longest, not how pretty they look at the end of the bout. Buying Syndesis was a mistake, but mistakes can be forgiven, especially in business, where future returns matter more than bad memories. My assessment is that 2012 may be the tough year that the RA industry has long needed – forcing out weaker players and leaving fewer vendors to enjoy more sustainable profits. It won’t be easy for Subex to satisfy their backers, but I’d still be surprised if they fell before some of their rivals.

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