x Abu Dhabi, UAESunday 23 July 2017

Assimilation of enterprise may leave little to cling to

The telecoms operators have for decades had cordial arrangements with one another to enable the voice and data traffic they carry for their customers to cross over into other networks.

The lore of Star Trek postulates the existence in space of an Alpha quadrant, home to the United Federation of Planets - called simply "the Federation".

There is also, among three others, a Delta quadrant dominated by villainous cybernetic humanoid drones, the Borg, whose raison d'etre is to acquire new species and assimilate them into the Borg collective. Prior to acquisition, the target species are candidly told "resistance is futile".

These two fictional quadrants are an extremely accurate pop-culture metaphor for the telecommunications industry - the Alpha quadrant - and the IT industry - the Delta quadrant.

Now, before you think I may have lost my marbles during teleportation and you set your phasers to "stun", allow me to take you where no columnist has taken you before. My Vulcan-inspired logic to this hypothesis goes something like this:

The telecoms operators, like the federation of planets in the alpha quadrant, have for decades had cordial arrangements with one another to enable the voice and data traffic they carry for their customers to cross over into other operators' networks. Whether these networks are in the domestic (national) sphere or whether they are international, the voice and data will originate at point A and be delivered to point B with 99.99 per cent certainty. This arrangement is referred to as "interconnect" by the telecoms industry and all the operators have specific departments and, in some cases, divisions responsible for dealing with the technical and commercial arrangements to "make it so".

This interconnect arrangement had led to a healthy status quo; as long as customers are being offered the services they want at the right price points and quality there is really no need to change the order of things.

Occasionally, the telecoms operators decide to undertake bouts of mergers and acquisitions (M&A) activity. It's rare but it does happen, as currently demonstrated by the interest Etisalat is showing in acquiring Zain, and the previous acquisition by Bharti of Zain's assets in Africa. The motivations for one telecoms operator to acquire another are many but from an operational perspective they broadly fall under the following: to create a shared network infrastructure, whether that be for fixed, mobile, broadband or satellite services; the combined entity thus avoids interconnect costs between the respective networks and, more crucially, has access to a wider base of customers on the combined database; this in turn allows marketing to develop specific campaigns for these customers and so on.

The operator may also opt for the formation of a shared services architecture, whereby the core systems such as billing are converged across the combined entity.

Generally, most of this makes sense and is driven by achieving economies of scale and scope. Where the telecoms company executives keep the interests of their employees, customers and then shareholders front and centre, the M&A should succeed in the long term. If, however the M&A is being driven by investment bankers and brokers, who are more interested in talking up the deal to earn a hefty management fee, then it's a bad call to make.

That's the alpha quadrant: relatively stable; a place to work together for the common good.

Let's beam ourselves into the delta quadrant, where giant predatory IT firms such as Oracle and Microsoft routinely acquire and assimilate smaller technology companies in a manner that would make even the Borg blush.

Since its audacious acquisition of PeopleSoft in 2005, Oracle has consumed a further 44 companies including major software application vendors such as Siebel Systems and Hyperion, middleware providers such as BEA Systems and server and storage vendors such as Sun Microsystems. Apparently, Oracle is now considering assimilating semiconductor companies into its collective.

Employees in the acquired entity must put aside their culture and heritage and comply with the Oracle collective, or be asked to leave. There are a number of stories about disgruntled staff and executives put in this situation. Recently, the co-creator of the Java programming language James Gosling made his announcement to leave Sun Microsystems a few months after Oracle acquired it. He did not state his reasons for his resignation on April 2 but cryptically put out the following comment on his blog a week later: "Just about anything I could say [about my reasons] that would be accurate and honest would do more harm than good."

Whether customers actually benefit from having a reduction in choice, particularly when many of the acquired companies would have preferred to have remained standalone enterprises, is highly debatable. What Oracle, like the Borg, has successfully done is to create a homogenous hive, which adds to its technological distinctiveness by assimilating other companies, individuals and technology into a central controlling collective.

Oracle is just one company; others in the IT sector have similarly voracious appetites to acquire and assimilate. At this rate, there won't be many IT service providers for enterprises to choose from. Surely that can't be a good thing for business?

Perhaps even more troubling is that the past few years have seen the two worlds of telecoms and IT, or the people of the Federation and those of the Borg collective, colliding. The entry of Google into the voice market to compete with telecoms operators, or in the UAE the launch by du last week of a social networking portal for the region to take on Facebook, are just two of many skirmishes under way.

Which quadrant will, as Mr Spock would say, "live long and prosper" is up for grabs. But if the lore of Star Trek is anything to go by, hope that engineer Scotty is standing by to "beam you up" when the battle engages and there's enough power left in the dilithium crystals to get us all out of the blast zone in time.

Rehan Khan is a business consultant and writer based in Dubai