News

Smart pipes dream

Openet’s chief executive Niall Norton has two years to bring the software company to the top. With revenues of about €40 million this year, he is well on his way.

Niall Norton likes to think of his company, Openet, as ‘‘the plucky little schoolboy’’ standing up for itself against the big boys in the playground.

A provider of software to many of the biggest telecoms and cable companies in the world, the firm routinely competes with - and beats - the gorillas of the software industry for business, according to the Openet chief executive. If Norton has his way, however, the word ‘little’ could soon be dropped from his description of Openet.

Under his plans, revenues at the Dublin-headquartered firm will be close to €40 million this year, depending on the timing of deals, and should hit €100million in three to four years. As Norton puts it, he wants ‘‘to take it the whole way’’ with Openet, possibly even to a stock market listing. By his own admission, Norton loves talking about Openet.

Founded in 1999, the company has raised about €40 million in funding from some of the biggest names in international venture capital. It has always had big ambitions, but has managed to fine-tune those in recent years, expanding revenues and turning losses into profits.

‘‘My objective has been to bring the company to a point where the shareholders have options. I have been very pleased with our progress so far,” said Norton, a UCD commerce graduate and accountant who was chief financial officer of Openet before taking the top job in 2006. ‘‘We have been getting the company to a place where its probability of success is greater.”

Openet’s software is used by telcos and cable firms to manage and charge for a range of services, and its deals are typically ‘‘multiple year, multiple millions’’. ‘‘Our mission is to make dumb pipes smart,” he said, describing how operators were focusing on selling an increasing range of services, often using their existing infrastructure. Increasingly complex mobile devices, such as the Apple iPhone, as well as the so-called convergence between fixed and mobile telecoms and the internet, are also helping Openet, as companies try to ‘‘monetise the value of transactions’’, he said.

The firm has made progress on several fronts this year, winning deals with new and existing customers, launching two new products, forming industry partnerships and hiring additional staff around the world.
Openet now employs 290 people, with about 110 in Ireland, 110 in the US, and offices in Malaysia, Brazil and Australia. The spread of offices reflects the company’s customer base.

In Europe, it counts Orange and BT as customers; in the US, it is working with AT&T and Verizon Wireless; in Australia, it has a deal with Telstra, the country’s biggest telecoms operator. Norton said that deals in the industry ‘‘take a long time to win’’, but were lucrative in the long run.

‘‘Our average licence deal would be worth about €2 million to €3 million for the initial deployment, with a pay-as-you-grow element, so we share in future revenues,” said Norton.

‘‘We have built trusted relationships with billion-euro companies because we can deliver the solutions they need.” Openet has also been expanding into the cable industry, doing deals with TimeWarner Cable, ComCast and Cox Communications in the US. A move into providing services to big operators has already yielded deals with four ‘tier one’ operators, which also ‘‘moves the needle for the company’’ in revenue terms, according to Norton.

He said that Openet was forming alliances with a small number of big partner firms that would sell its software as part of a larger package. The firm is also actively considering acquisitions. ‘‘There is one company we are looking at,” he said, ‘‘although a deal is not likely until next year.”

‘‘There are one or two areas we’re giving active consideration to in terms of expanding the product portfolio. We have the right focus - we just need to sharpen it.” All of those moves will help Openet’s finances, although Norton said the firm was still expanding and investing heavily.

The company’s accounts for 2007 show turnover of €30.4 million, up slightly from €29.8 million in 2006. However, pretax profits fell to €1.9 million last year, from €3.6 million in 2006, reflecting rising costs because of continuing investment.

At the end of last year, the company had €26.1 million in accumulated losses, but had shareholders’ funds of €11.5 million. Norton said the firm was self-funding and had not raised any new capital since 2002, although it had ‘‘topped up’’ a specialist loan facility to €5 million this year.

That will allow the firm to continue to invest in expansion, a strategy that has been endorsed by its board and backers, according to Norton.

‘‘The figures mask the level of activity.We have ploughed a lot of money into product development and marketing,” he said, pointing to the continuing release of new products, with two more due to be launched early next year.

‘‘The product development team has increased in size by about 20 per cent, which equates to an additional €1 million. Our marketing spend has probably gone from €500,000 to €3.5 million. We are getting the best people and have continued that into 2008 on a fairly serious basis.”

Despite the slowdown in world economies, Norton said that Openet was not yet seeing an impact on spending among telecoms firms. However, ‘‘some timing issues’’ could affect this year’s final revenue figure. ‘‘People are being more careful about cashflow and a lot of things are being pushed into the last quarter of the year. By year end, we would expect to do between €35 million and €40 million. Even at the lower end of the spectrum, we expect we will still make decent money, with profits in the same region as last year,” said Norton.

While he is not a technologist, Norton has an insider’s knowledge of the telecoms sector, having been chief financial officer of O2 Ireland - the second-biggest mobile operator in the country - before joining Openet. He joined the mobile firm in 1997 when it was Denis O’Brien’s Esat Digifone, a fledgling operation with about 9,000 subscribers.

Digifone’s then chief financial officer, John O’Rourke, was ‘‘a mentor figure’’ for Norton during the flurry of activity in the following years, with the major ramping up of Digifone, followed by the takeover by British Telecom and demerger of the mobile business. When the dust from those transactions had settled, Norton was a senior executive of a company with more than 1,000 employees, 1.1 million subscribers and strict quarterly reporting requirements.

‘‘The promotion path would have been into a group finance function [in O2] with a view to being a plc chief financial officer,” said Norton,who had enjoyed being involved in the entrepreneurial side of growing Esat. ‘‘I am a huge believer in creative destruction - that all the old stuff needs to be blown up every so often,” he said. Rather than getting deeper into the plc, he wanted to add some ‘‘general management experience’’ to his background in accounting and corporate finance.

For help, Norton turned to his old boss from Digifone, Barry Maloney, who had left after the BT takeover. Maloney had become a venture capitalist with Benchmark Partners (now Balderton Capital) and had led the firm’s investments in several Irish companies, including Openet.

‘‘I sat down with Barry and described what I was looking for and asked if he could think of anything suitable,” said Norton. ‘‘He suggested Openet.” Meetings with the Openet team followed, including founder and chief technical officer Joe Hogan, and Norton was convinced by the firm’s prospects. After ‘‘some negotiations at home’’, he left O2 in early 2004 to take the chief financial officer post at the software firm.

Norton said there was ‘‘some degree of surprise, but no bad feeling’’ inO2 at his decision to leave the security of the mobile operator for the risky software sector. Dozens of Irish technology companies had attracted funding during the dotcom boom, but most had struggled to achieve any scale. Many had gone to the wall or scaled back their ambitions.

Openet was not in that category, and had actually taken part in industry consolidation in 2003, buying up Sepro, another Dublin firm operating in the telecoms billing sector. However, despite having some large customers and revenues of about €16 million in 2004, the company was still loss-making as it built its business around the world.

When chief executive John Rainger left in 2006, Norton stepped up to the top job. While revenues have doubled from the 2004 figure and the company is firmly in the black, Norton said he was not taking anything for granted. ‘‘We are not in any sense complacent or arrogant - our motto is that only the paranoid survive. We are a growing company with a specialised product, and we can’t afford to place too many wrong bets,” he said.

Norton acknowledged that Openet’s backers would also be looking for a return on their investment, but said he was not under any pressure in the short term.

‘‘We are not looking to be bought. We will have no more shareholder withdrawals unless we have a run at buying somebody ourselves,” he said.

‘‘But our investors are all hard-nosed businesspeople. I have two years to go in a plan to bring the company to a place where it has serious options. That could be a stock market listing under our own steam or a strategic partnership. Our vision is pretty ambitious.”