Although merging is a good move for Logica and CMG, its only effect will be to cut costs; LogicaCMG will struggle in MMS just as much as its predecessors did. It seems strange that two established IT firms have invested so much in building mobile infrastructure businesses that – even before MMS launched – seemed to have limited long term potential.
Technology consulting groups Logica and CMG will merge.
UK-based IT services firms Logica and CMG have agreed to merge. LogicaCMG, with an annual turnover of around E3.1 billion, will be the second largest European-based IT services group. The merger isn’t out of strength, but out of desperation to cut costs.
This is driven by two factors: one universal – the prolonged IT services recession – and one unique – Logica and CMG are two of the largest players in SMS infrastructure, but not its replacement MMS.
SMS messaging was originally a tool for network engineers, and Logica and CMG’s telecoms consulting units offer core network integration and building. So when SMS unexpectedly took off, they were already well positioned to provide operators with the necessary, proprietary infrastructure.
However, the MMS infrastructure market is rather different. Giants such as Ericsson and Motorola were forewarned and fore-armed that operators would invest heavily in MMS; Logica and CMG have therefore had to face their superior salesforces and greater ability to cut deals, through vendor financing and multi-product bundling.
On top of that, MMS is not a proprietary standard. While there is some variance between different systems, requiring integration work, there is much less opportunity for incumbents to defend their share through proprietary action than with SMS. So Logica and CMG have had little opportunity to win new clients, or even keep existing ones.
It’s no surprise, then, that despite dedicating significant resources to mobile infrastructure, the companies have had little success in MMS. Nor will the merger do anything to address that – LogicaCMG has few (if any) advantages for clients over its predecessors. The deal’s only major advantage is that it allows both firms to scale back costs.
So shareholders could well be left puzzled as to why two established consulting firms have managed to find themselves with loss-making white elephant infrastructure businesses round their necks, given that even at the time, the SMS success looked unlikely to continue into the long term.
Related research: Datamonitor, Industry Review: Telecoms – November 2002 (BFTC0788)
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