SS7: Despite Slowly Shrinking Market Pie, Vendors Still Looking to Get Bigger Piece

Implications: 1.Several SS7 hardware vendors are looking to attack the U.S. dominant vendor, Tekelec, to gain market share in the space.
2.Lower pricing will be the main weapon.
3.They also believe that there is some level of opportunity in going after VeriSign’s resale business.

Analysis: SS7 is hardly dead or going away anytime soon. Some analysts have made the case that even after TDM/voice disappears, the SS7 will still be around because it is necessary for the wireless signaling and so forth.

Both Huawei and Alcatel-Lucent have been putting price pressure on Tekelec’s signaling business, which itself is at best mildly profitable. The good news for the domineering STP provider in the U.S. is that it has about $300 million in the bank. However, its past track record in terms of making acquisitions has not been too stellar.

Pricing pressure by other competitors is also having a negative effect on Siemens, the number one SS7 provider in Europe (although it has not really moved outside of the continent to provide this functionality). Siemens’ costs on its product are high.

In terms of other equipment vendors, Cisco Systems claims to have an STP blade on its

router. But closer examination points out that the gear is not as full-blown as the supplier might like to hope. Ericsson has not really gotten into the space – it has a signaling gateway that can do some STP function, but it is really pointed at the IMS space.

With the possibility of VeriSign selling off its legacy telecom business, there would be a lot of companies interested. It certainly would not go cheap. The SS7 portion alone could generate more than a billion dollars.

VeriSign practically owns the U.S. SS7 outsourcing market. It is not really a capital-intensive business as Tekelec equipment was deployed in its network several years back. Since then, the amount of reinvestment has been minimal – other than buying some plugs. In fact, Verisign’s favorable cost structure has allowed it to lower its prices in order to retain customers. Other players such as Syniverse, Neustar, Telcordia, and AT&T have not pursued the SS7 resale market aggressively in the States.

With VeriSign having as many as 1,000 SS7 customers, manufacturers believe they can exploit this area. For example, Tekelec announced that it is coming out with a standalone version of its STP that can work on H-P equipment. In other words, a customer could buy a generic, off-the-shelf HP hardware and with a software package, receive STP capability. This concept might be pretty attractive to some of the mid- to high-level VeriSign customers -- in terms of looking to lower their costs by starting to do SS7 internally.