The race is on to develop carrier-class software infrastructure for the next generation of wireless data applications, and last week’s merger announcement between TeleCommunication Systems Inc. and Xypoint Corp. adds a new contestant to the field.
The agreement calls for TCS to acquire Xypoint in a stock-for-stock transaction. The result is significant for the intelligent messaging services that carriers will offer in the future by adding Xypoint’s wireless location technology to TCS’ wireless messaging expertise.
“Xypoint increases our depth and breadth within the carrier, Internet and enterprise markets,” said Maurice Tose, president, chairman and chief executive officer of TCS. “We believe this acquisition will help us accelerate our rollout of wireless application service provider and service-bureau offerings.”
This is the first acquisition for TCS, which conducted its initial public offering in September. The company provides wireless network applications, such as short messaging services, prepaid and a wireless Internet gateway platform. It also has a strategic relationship with infrastructure provider Lucent Technologies Inc., in which TCS’ products are sold in the core of the wireless network, a factor TCS is marketing heavily.
“What we’re saying is that we, together in this merger, are going to create trulyintelligent messaging-bringing all the intelligence carriers already have to the messaging services,” Tose said. “If you look at Phone.com or InfoSpace, they’re not really at the core of the carrier’s network, in the SS7 switch where the intelligence really is. Our products extract that information.”
In other words, messaging becomes intelligent when it can determine location, device awareness and device type. Possible applications include adding location data to buddy lists, for instance, so only those users in the same local area appear on a user’s buddy list. Other applications include location-based traffic reports, games and local content.
“The commodity type of content available today can be souped up just by adding location technology,” said Bo Fifer, analyst at Deutsche Bank Alex Brown. “TCS has taken location and put it into their wireless application suite, allowing them to drive the value of their services and create much cooler applications. … They can channel location information to existing applications. They can also channel location-based messages through TCS’ existing wireless Internet gateway. It’s a good leverage with TCS’ existing products.”
These services will be offered using a wireless application service provider model, in which TCS services will be stored in Xypoint’s data center. The intent is to migrate these products and services in-house over time.
“When they’re ready to bring that inside their networks, we can,” Tose said.
The first goal is to develop an enterprise version of Xypoint’s Nomad wireless e-mail service, the companies said, and integrate Xypoint’s Mobile Positioning Center into the TCS network.
While alone the merger may not be the most significant pairing to occur in the industry, it represents a growing trend toward offering greater-value services to carriers. Few feel they know what the killer applications of the wireless Internet space will be and companies like TCS are actively positioning themselves to be in a place where they can offer whichever services prove popular.
“They want to offer wireless data services because that’s a higher-value business to be in. This space is just starting to sort out and all players are migrating to where that higher value is,” Fifer said. “TCS is in as strong a position as anybody, given their entrenchment in the SS7 backbone, now adding location to that and their existing application and gateway services.”
The terms of the transaction give Xypoint shareholders 4.3 million shares of TCS common stock in a fixed exchange ratio that will leave them holding about 14 percent of all TCS stock. Xypoint President and CEO Ken Arneson will become chief strategist at TCS.
