It was early January, and Tekelec President and CEO Fred Lax had just returned from the company's first sales meeting of 2005. The meeting marked several company milestones: It was the first full gathering of Tekelec's newly integrated sales force, encompassing everyone from the companies Tekelec acquired in 2003 and 2004 — many of whom were not with the company at the last sales meeting. Tekelec also used the event to introduce to its employees its new branding and marketing campaign, which itself signified a departure from the technology-heavy messaging of the company's past.

Most important, the meeting marked the first formal internal iteration of Tekelec's intention to leverage its years of legacy signaling expertise and the investments it has made and present itself to the telecom world as a next-generation, IP-capable, software-savvy player.

Back at his office at Tekelec's headquarters in Calabasas, Calif., in January, Lax's demeanor was just as one might expect from a CEO coming off such a meeting: an even mix of excitement and exhaustion. His company's acquisitive streak was complete, at least for the time being. The company had finished an important integration of its sales force that would make it possible to approach the market in a way that would demonstrate unity and the logic of its strategy. And its external messaging was ready to introduce what Lax and everyone else inside Tekelec was saying was a new way of thinking about Tekelec, its history and what it is now capable of doing for telecom service providers.

“Tekelec has built its 25-year history on technology,” Lax said. “We're augmenting that with marketing. Now we have bundled solutions, and we have to have consistent messages.”

That 25-year history is extremely important to Tekelec's future, both in terms of what it intends to accomplish from a technology standpoint and in terms of how its customers, competitors and critics characterize the company. That history — and future — has been dramatically altered over the past two years, thanks to a string of acquisitions that propelled the company into next-generation switching, voice-over-IP (VoIP) services and network applications software (see box).

Tekelec was formerly presented as a U.S.-centric company that provided SS7 signaling solutions to telecom carriers. Its intention now is to be perceived as a vendor with global reach that can provide next-gen signaling solutions such as session initiation protocol (SIP) and IP multimedia subsystem (IMS), next-gen switching that enables VoIP and other IP applications, and applications at the network level for functions such as quality of service measurement and performance monitoring. In short, Tekelec used to be considered just a signaling company, and now it wants to be considered a software company.

Asked about transforming the perception that Tekelec is “just” an SS7 company, Lax said, “It's a very important point.” Mark Whittier, Tekelec's vice president of corporate marketing, quickly cut in: “Critical is the word I'd use,” he said.

Whittier, who came to Tekelec via the company's acquisition of VocalData last year, is one of the chief stewards of the company's new external message. Having been an outside observer of Tekelec's evolution from his perch inside a developer of hosted VoIP solutions that was the capper in Tekelec's acquisition spree, he knows the importance of the consistent message Lax mentioned. The only way Tekelec will be perceived by carriers as an IP-centric supplier of softswitches, software-based applications and next-gen signaling systems is if that characterization of the company is repeatedly burned into the collective brain of the service provider set.

The products Tekelec gained through acquisition are a critical part of that equation, Whittier said — particularly in the switching market, where Tekelec is decidedly an underdog in a multibillion-dollar global realm inhabited by the likes of longtime switching incumbents such as Alcatel, Ericsson, Lucent Technologies, Nortel Networks and Siemens.

“Tekelec is new to switching in terms of the company formerly known as Tekelec, but it's not new in terms of the components that comprise the new Tekelec,” Whittier said.

But Tekelec has no intention of leaving its legacy as an SS7 signaling provider behind. In fact, it's that history — particularly with the industry's largest service providers, which keep growing larger every day — that the company often relies on to open doors to present its expanded line of goods to carriers.

“When you walk in as Tekelec with the Santera product, there's a lot more respect,” said Scott Weidenfeller, the company's vice president of global marketing, who came to Tekelec via the Santera acquisition. “Tekelec has a history of having bulletproof products.”

One carrier example of Tekelec's signaling-to-switching leverage is US LEC, which was an SS7 customer of the vendor for more than five years before it began buying Santera switches.

“We purchased the SanteraOne at the time Tekelec was acquiring a majority stake in Santera, and Tekelec's ownership was a major factor in that selection,” said Alan Fitzpatrick, senior vice president of engineering for US LEC. “Tekelec is moving in the right direction on the next-generation architecture and converging the platform for IP services.” He said, though, that US LEC's IP voice strategy is based on another platform in its network.

Tekelec's critics say its presence in the softswitching realm is where it is most vulnerable, in part because the people within service provider organizations who specify softswitch purchases are not the same ones who buy signaling gear. Some believe the softswitch portion of the company's acquisition strategy was flawed because Tekelec bought entities with relatively unproven product performance that it could get at lower cost rather than paying more for companies in which it already had an equity stake, such as Spatial Wireless, which was acquired by Alcatel, and Telica, which was acquired by Lucent.

Others, though, believe the company has a shot, especially in particular segments of the telecom carrier market.

“As opposed to all the other start-ups in the space, the fact that they have a legacy position to leverage gives them an advantage,” said David Yedwab, executive vice president of The Eastern Management Group, an industry consultancy. “They're doing well in the [independent operating company] space, particularly because Nortel has abandoned it. And clearly, the SS7 business is not going away for a long time.”

For his part, Lax stands by Tekelec's acquisition decisions. “Our prior equity investments were not a factor at all in making decisions about what companies to acquire,” Lax said. “As we looked around the industry, we determined that the Santera approach and the VocalData approach were where we needed to go.”

Tekelec's executives, while acknowledging the company's challenges, are consistently confident about the opportunity.

“We have all the pieces, but there's still some work to do,” said Tricia Hosek, president and general manager of Tekelec's switching solutions group. “We have a strong portfolio of really high-tech gear in a financially sound environment. There's an energy level here you won't see at a lot of the incumbents.”

Tekelec is similarly confident in its ability to leverage its signaling history into success in the other components of its broadened software strategy. Its acquisition of Steleus formed the foundation of Tekelec's communications software solutions group, which is headed up by Rick Mace, the former president and CEO of Steleus. The company was a developer of performance management software for applications like network assurance (performance monitoring and security), revenue assurance (billing verification and fraud management) and revenue generation (service creation and real-time data collection) — software that Mace said is able to provide carriers with “the broadest array of data at the most granular level possible.”

Tekelec and Steleus started out as partners, but Mace said their respective strategies aligned so well that ultimately it made sense for Steleus to become a core part of Tekelec.

“In a next-gen network, the switching architecture facilitates service creation and distribution,” Mace said. “We had the performance management architecture capable of spanning both of those worlds. The ability to launch new services and measure the effectiveness of those launches is critical to accelerating the acceptance rate of next-gen switching technology.”

That acquisition also helped push Tekelec outside of North America, where 80 customers of Steleus were located.

The other element of Tekelec's reinvention is even closer to its roots: next-generation signaling, namely in the form of IMS. The IMS architecture — now touted as the nexus of wireline/wireless convergence — is critical to Tekelec's strategy because of both its important functionality and Tekelec's signaling expertise.

“Lots of suppliers are talking about the IMS network and believe in what IMS has the promise of providing,” Lax said. “One of the advantages Tekelec has is the ability to leverage our investments on the legacy SS7 side and help carriers transition to next-gen networks.”

Tekelec admits that the immediacy of the IMS opportunity — as well as service provider understanding — is less certain. Whittier pointed to the 3GSM World Congress in Cannes, France, earlier this year, where several people approached Tekelec representatives to ask if they could “buy some of our IMS,” Whittier said.

“We had to tell them that you can't ‘buy’ IMS — it's an architecture,” he said. “But it proves that IMS has suddenly become the watchword for next-gen IP-based services.

“Tekelec has a key element in each of the next-gen network clouds and in the legacy network, and we live at the intersection of the two,” Whittier said. “We are ideally positioned to manage the transition. That moves Tekelec from a vendor that has stuff carriers can buy to a vendor with stuff carriers can sell.”

Selling technological capability and expertise is obviously important, but for a company attempting a repositioning in multiple markets simultaneously, the integration of acquired companies can be just as critical.

“Seventy-five percent of acquisitions fail, for one reason or another — mostly at the integration level,” Lax said. He is confident that won't happen with Tekelec, particularly now that the sales force integration and reorganization is complete.

“It comes down to taking the three business unit presidents, giving them P&L responsibility and doing an interlock with orders, revenue, opex and operating income,” Lax said. “It's important to have a common customer-facing organization — sales and marketing on the front end, customer service and support on the back end. The leaders of that are peers to the business unit leaders. There's no such thing as having your own sales force or customer service organization.”

As for bumps along the way, both Lax and Whittier said fast growth and managing scale were among the toughest hurdles.

“When you acquire emerging companies, they're running things on a shoestring,” Lax said. “They're not built to scale. Scale is something we focus on a lot. We want to be a fast ultra-large rather than a slow-ultra large.”

“If anything, just the sheer size of the growing Tekelec has introduced some challenges,” Whittier said. “It's more a factor of increased scale than divergent culture.”

At the end, the proof is always in the numbers, and Tekelec has been vocal of late about both its customer wins and its positive revenue momentum (see timeline). Whittier said in early April that Tekelec has passed the 200 switching customer milestone, with 269 switching systems currently deployed in various flavors — VoIP servers, small-scale TDM switches, softswitches and media gateways.

With the formulation of the company's technology strategy complete, at least for now, and the integration going smoothly, Lax said Tekelec's focus now is all about execution — on continuing to prove its technology capabilities to service providers in the new sectors the company is pursuing.

“Most of the heavy lifting with regard to acquisitions is complete. We have the foundation,” Lax said. “We'll always consider augmentation, but it's not as if there's some huge gap.

“I like to think of Tekelec as having invested and assembling our portfolio in a down market. Now we're poised to take advantage of the market.”

Tekelec Acquisitions

Company	Category	Acquisition date
VocalData	Hosted IP applications	September 2004
Steleus	Performance management apps	September 2004
Taqua	Next-gen switching	February 2004
Santera	Next-gen switching	April 2003
Source: Company reports

Tekelec's 2005 Milestones

MARCH

• CLEC Integra Telecom deploys Tekelec 9000 switches
• IOC Valley Telecom Group deploys two Tekelec Eagles and traffic management apps
• UMA support debuts on Tekelec 8000 wireless multimedia gateway
• IOCs Bloomingdale Telephone and Noxapater Telephone deploy Tekelec 7000 switches

FEBRUARY

• Tekelec announces Q4 earnings of $115.9 million and 2004 annual revenues of $397.1 million
• SBC Services announces deployment of 20 Tekelec Eagles over three to five years
• IOC Vortex Broadband deploys Tekelec 7000 switch and Tekelec 6000 application server
• Indian operator VSNL deploys Tekelec Eagle

JANUARY

• IOC Thacker-Grigsby deploys Tekelec 9000
• Two Tier 1 wireless operators deploy Tekelec 8000
• One Connect IP deploys Tekelec application server for hosted VoIP

Source: Company reports