Incorporated: 1984
NAIC: 541512 Computer Systems Design Services; 33418 Printed Circuit Assembly;33429 Other Communications Equipment Manufacturer; 514191 On-Line Information Services; 511210Software Publishers
Founded in 1984, Comverse Technology, Inc. quickly grew to be a leader in multimedia messaging communications systems, namely mobile mailboxes for wireless networks. With over 370 customers in more than 100 countries, Comverse provides voice mail, fax and messaging services to most of the world's largest telecommunications companies. Comverse sells its products through an international sales force and found success early by securing a multimillion-dollar contract with the German government. The contract gave Comverse recognition as a contender in the new wireless voice mail messaging market. Today, Comverse continues to stay on top by offering a wide range of updated features, options, and variations on its systems and by developing new technologies for the communications field. Even with the slowdown in the tech sector during 2000 and 2001, Comverse has been able to post record revenues.
Kobi Alexander founded Comverse Technology in 1984. A native of Israel, Alexander had studied economics in Tel Aviv before moving to New York in the early 1980s. He enrolled at New York University, but also found a job as an investment banker at Shearson Lehman. Alexander worked full-time at Shearson and earned his Masters of Business Administration at night. Alexander had always wanted to run his own business, but he did not expect an opportunity to arise so early. In 1982, Alexander met Boaz Misholi, an Israeli engineer who had an idea for a business venture. "The week after I met him, I resigned from Shearson," Alexander recalled in the June 18, 1990, Newsday. "I always knew I wanted to have my own company."
Misholi's idea was to develop a voice and fax messaging system that would allow customers to store, process, access, and transmit information from any telephone or fax machine. The system would offer a far more comprehensive alternative to answering machines and other rudimentary gear available at the time. Misholi and Alexander recruited some engineers to help them develop the system. They also moved to their native Israel, where the national government was awarding subsidies to high-technology start-up companies.
In Israel, Alexander and Misholi operated their venture as Efrat Future Technology Ltd. It took the company just a few years to design and develop a marketable messaging system. Alexander and Misholi worked with the development team in Israel for two years. Joining them was Alexander's brother-in-law, Yechiam Yemini, who served as the company's chief scientist. In 1984, Alexander, Yemini, and Misholi moved back to New York to begin laying the groundwork for an infrastructure through which they could market their product once it was ready to sell.
The three partners set up a company in Woodbury, New York, called Comverse (a fusion of "communication" and "versatility"). In fact, that enterprise became the parent company of Israel-based, Efrat Future Technology, Ltd. Comverse was incorporated in New York in 1984. The company generated sales of a few million dollars annually during its first three full years of operations. Net losses during the period were only slightly less than the company's sales volume because of expenses related to marketing and ongoing research and development. To raise additional investment capital, Comverse went public on the NASDAQ in 1986.
The product that Comverse began marketing in the late 1980s looked like a simple box. Inside the case, though, was a complex multimicroprocessor computer. The computer, when hooked to a customer's telephone line, was capable of performing a number of information-management functions related to voice and fax messaging, as well as call processing. For example, it could store incoming and outgoing messages for different people in personal "mailboxes." Although similar products were on the market at the time, Comverse claimed to be the first company to integrate voice, fax, and call processing functions into a single system.
Misholi served as president and chief executive of Comverse in 1986 and 1987. In 1988, he resigned to pursue other interests; he later became a professor of computer science at Columbia University. Alexander stepped up to assume the helm, still aided by Yemini. Alexander realized that, because his tiny company was participating in an industry dominated by such telecommunications technology giants as AT&T, he would have to devise a savvy marketing strategy if he wanted to compete successfully. To that end, he decided early to target the international market, particularly in Europe. With the European economic unification scheduled for 1992, Alexander reasoned, Comverse could benefit by developing an early lead in its niche on that continent.
Specifically, Alexander and fellow executives succeeded during the late 1980s in securing exclusive relationships with several of the top equipment distributors in Europe. Between 1987 and 1990, Comverse signed marketing agreements with six large European distributors who had already established cozy relationships with governments and major equipment buyers. Those agreements gave Comverse an edge over larger rivals, because the distributors often learned of potential deals before Comverse or its rivals. That allowed Comverse to begin pushing its product early in the decision-making process. Among the companies that had agreed to distribute Comverse systems were Ascom Gfeller (Switzerland), GPT (United Kingdom and Australia), Voice Data Systems (Holland), and Oki (Japan).
Nokia Data Systems, an electronics products distributor based in Helsinki, Finland, became the sixth major distributor to sign up with Comverse in the late 1980s. Nokia Data was a member of the $5 billion Nokia Group, the world's largest manufacturer of mobile phones and cable machines. The agreement was important for Comverse because it made the company Nokia's exclusive provider of messaging equipment. Nokia enjoyed a close relationship with the Finnish national telephone company and provided Comverse with a strong link to parts of Europe and the Soviet Bloc that were relatively inaccessible through other marketing channels. Indeed, Comverse was banking on such emerging regions as the former Eastern Bloc to drive industry growth in the long-term.
Comverse found a winning formula when it targeted Europe for its sales expansion. In 1990, the company landed a lucrative German government contract worth $10 million. The German post office, or Deutsch Bundespost, was accepting bids to supply messaging systems for German cellular telephone users. Competing for the contract were such telecommunications and computer giants as AT&T, Hewlett-Packard, the Netherlands' Alcatel, and Germany-based Siemens. Comverse was aided in the bidding process by Ascom Gfeller, a large Swiss distributor with which it had signed an agreement in the late 1980s. The giant contract--by far the largest ever captured by Comverse--gave the company instant recognition as a contender in the market for messaging systems.
The system that Comverse had developed during the 1980s and agreed to supply to the Deutsch Bundespost was dubbed the "Trilogue." The product allowed callers who failed to connect with a cellular phone user to leave a message in the user's "mailbox" for later voice or fax retrieval, or remote paging. By the time it secured the Deutsch Bundespost contract, Comverse had sold only about 300 Trilogue systems, mostly in the United States. The German government, though, planned to install enough Trilogue systems to create 100,000 mailboxes for cellular phone customers.
Before the German contract, Comverse employed about 150 people, roughly 40 of whom were located at Comverse's New York headquarters; the rest were in Israel. The company performed most of its research, development and manufacturing in Israel, then assembled, marketed and distributed the systems from its New York offices. Most of the equipment was shipped to Europe. In fact, the percentage of its products shipped overseas had grown from ten percent in 1987 to about 80 percent by 1990. Comverse's United States sales were mostly to domestic telephone companies, particularly the wireless divisions of the Regional Bell Operating Companies and independent cellular companies like PacTel and McCaw.
Largely in response to the German deal, but also because of subsequent contracts, Comverse began adding staff and beefing up operations in the early 1990s. Sales increased to nearly $16 million in 1990 and then to more than $21 million in 1991. After posting its first positive net income in 1989 (of $380,000), Comverse's profit rose to nearly $3 million in 1991. Augmenting growth in sales of its proven Trilogue systems, Comverse was developing and marketing other technologies. In 1990, for instance, it started selling a product called FaxLogue, a Trilogue add-on system that provided a wide range of options for sending, receiving, and storing facsimile messages. The technology was first implemented by US West Communications, a Regional Bell Operating Company.
A series of developments during the early 1990s combined to rapidly boost Comverse's revenue and profit. In 1991, for example, Comverse agreed to purchase (in 1992) the assets of Startel Corp., which became a subsidiary of Comverse. Based in Irvine, California, Startel Corp. was a leading supplier of transaction processing systems used mostly by the telephone answering service industry, hospitals, and corporate message centers. The acquisition brought important new technology to Comverse's research and development lab and gave it access to a new segment of the market.
Likewise, Comverse scored a big victory late in 1992 when it reached an agreement with global communications giant AT&T for that company to offer Comverse's multilingual voice-processing system to corporate customers and telecommunications providers outside of the United States. The deal was a huge boon for Comverse because it represented an endorsement of its technology by the communications industry leader. The agreement gave AT&T the right to market Comverse's Trilogue and newer Trilogue Infinity products. Among the systems' newer features was a "virtual telephone" feature that allowed residents in developing countries to have a telephone number without actually owning a telephone or paying for a separate line.
In addition to marketing successes, Comverse continued to profit from the development and introduction of cutting-edge technology. By the mid-1990s, its Trilogue systems featured a number of sophisticated features. For example, newer Trilogue units incorporated multilingual speech recognition that allowed users to control their messaging functions by speaking commands in their native language. Other complex functions allowed Comverse's gear to support a variety of protocols and equipment and to minimize communication costs and maximize the efficiency of information flow.
As important as advances in Comverse's core Trilogue product division were, the company also found success in a different line of technology called AudioDisk. Comverse had developed AudioDisk in the late 1980s and started marketing it in the early 1990s. It assumed a much lower public profile than Trilogue, however, because the AudioDisk systems were marketed primarily to police and intelligence organizations. Therefore, the company was comparatively discreet about sales of the units. AudioDisk systems enabled police and intelligence gatherers, as well as public health, safety, and financial institutions, a much-improved alternative to wire-tapping, which traditionally relied on reel-to-reel tape. AudioDisk used digital technology to simultaneously monitor hundreds of telephone and fax lines and retrieve data instantly. Although it had received much less public attention than the Trilogue line, AudioDisk systems accounted for about 50 percent of Comverse's total revenue base in 1993. Furthermore, growth prospects were favorable. Sales gains in the AudioDisk division amplified hefty gains in Trilogue shipments driven largely by rapid international growth from Asia to Europe.
Comverse reaped the benefits of rapid expansion during the mid-1990s. Its sales rose to $37.5 million in 1992 before more than doubling in 1993, while net income increased to nearly $15 million. Then, in 1994, Comverse boosted revenues more than 40 percent to $98.84 million. But, even with yearly increases in revenues and profits, the company continued to look for ways to improve upon itself. It also faced tough competition from Octel Communications, which at the time was the industry leader of messaging services. When word came out that Octel would be purchased by telecommunications giant Lucent Technologies, Comverse needed to find a way to remain competitive. In August 1997, it secured a deal to merge with Boston Technology, headquartered in Wakefield, Massachusetts. Previously, Comverse had been primarily marketing its services to digital cellular phone or wireless companies, Boston Technology specialized in supplying voice mail, fax and messaging services to traditional wire-based telephone companies. The merger allowed Comverse to now offer its services to both wireless and wireline companies and gave Comverse clout, as it became one of the largest makers of messaging systems in the world. Boston Technology's operations were combined with Comverse's Network Systems division and Francis Girard, president and CEO of Boston Technology, became president and CEO of the Network Systems division, while Kobi Alexander continued in his current position of chairman, president and CEO of Comverse.
By the end of the 1990s, Comverse stood as the market share leader of wireless voice messaging systems with revenues reaching $1.2 billion and a customer list that included telecommunications giants Sprint PCS and Vodafone in Europe. But the company was also in danger of becoming a one-hit wonder. After 15 years in business, Comverse derived a whopping 73 percent of its revenues from essentially just one product--mobile mailboxes. Critics of Comverse point out that since its breakthrough voice mail system, the company has offered little else in the way of innovative products. Aware of the criticism, Comverse began a business strategy in the late 1990s and early 2000s to acquire companies with promising technologies of their own. For example, in March of 2000, Comverse signed an agreement to acquire Loronix Information Systems, Inc., a leading developer of software-based digital video recording, networking and live Internet video streaming technology. Management decided to run Loronix from its existing facility in Durango, Colorado, as a subsidiary of Comverse. The company quickly followed up that transaction with the purchase of an Israeli start-up company Exalink for $480 million in stock. Comverse hoped Exalink, like Loronix, would help it expand into the high-speed 3G video streaming technology arena and capture more sales to cell phone companies that had begun to outfit their networks with this much ballyhooed new technology.
Prior to acquiring Loronix and Exalink, Comverse bought Amarex Technology, Inc., a privately held software development company in March 1999. In August of that same year, Comverse purchased InTouch Systems, Inc., maker of speech recognition software. InTouch, based in Cambridge, Massachusetts, perfected the industry standard for natural language speech application interface based on continuous, speaker-independent, large-vocabulary speech recognition technology. Called InFlection, it gives subscribes the capability to dial, check email and even surf the net through voice commands. Subscribers may also have email and fax messages read to them over the phone. Commenting on the acquisition in a press release, Kobi Alexander, chairman, president, and CEO of Comverse, recognized the benefit and need for voice-activated services. "The increasing need to reduce the complexity of communications, as well as the growing focus on safety issues relating to using wireless handsets while driving are fueling the demand for a single, easy-to-use voice-based interface to network-based services," Alexander pointed out. "The integration of InTouch's state-of-the-art voice technology applications and middleware with Comverse's wide portfolio of advanced messaging and information services positions Comverse to expand its leadership in enhanced services even further by providing our customers with leading-edge voice activated services."
As of 2001, Comverse Technology Inc. divided its products and services into five primary business groups. Comverse Network Systems sells the company's Access NP and Trilogue Infinity enhanced services platforms to wireless, wireline, and Internet companies. Through the Comverse Infosys division, the company offers the Audiodisk line of multimedia digital monitoring systems to law enforcement and intelligence agencies. The Ulticom division is a leading provider of network signaling software for wireless, wireline, and Internet communication services and was formerly known as DGM&S Telecom. Startel is Comverse's provider of integrated voice, data and networking software, which is used by telephone answering services, governments, universities and healthcare organizations. Comverse's star*home division delivers enhanced roaming messaging services to subscribers worldwide.
With Comverse's current rapid expansion through acquisitions, chances are good the company will add more divisions and product lines in an effort to keep its technology competitive and to retain its leadership in the marketplace.
Principal Competitors
Lucent Technologies; Nortel Technologies
Further Reading
"$2 Million Order for Comverse," Israel Business Today, April 7, 1995, p. 12.
"AT&T Using Comverse Technology System," LI Business News, May 30, 1994, p. 43.
Alexander, Kobi, "Comverse Technology Announces 1994 Results," Business Wire, posted March 22, 1995, http://www.businesswire .com.
Bernstein, James, "Big Catch for Small Fry," Newsday, May 18, 1990, p. 47.
------, "High-Tech David Beats out Goliaths," Newsday, June 18, 1990, Section 3, p. 5.
Berry, Don M., Alexander, Kobi, et al., "Comverse Technology Inc. Enters into Definitive Agreement to Acquire Startel Corp.," Business Wire, posted October 18, 1991, http://www.businesswire.com.
"Best Comverse Profits Ever," Israel Business Today, May 21, 1993, p. 5.
Citrano, Virginia, "Telecom Contracts Spur N.Y. Exporters," Crain's New York Business, March 8, 1993, p. 17.
"Contract Signed by Comverse, US West," Business News, March 12, 1990, p. 13.
Demery, Paul, "Sales Calls Ringing for Telecom Exports," Business News, January 22, 1990, p. 3(2).
Labate, John, "Comverse Technology," Fortune, May 17, 1993, p. 102.
Machlis, Avi, "Comverse Acquires Israeli Start-up," Financial Times, London Edition, July 6, 2000, p. 34.
McDonald, Michael, "Message for Comverse Is Diversification," Crain's New York Business, March 26, 2001, p. 14.
Smithberg, Kristen, "Boston Technology Joins Comverse in Merger Deal," RCR Radio Communications Report, August 25, 1997, p. 22.
"Record Quarter at Comverse," LI Business News, December 4, 1989, p. 6.
Wax, Alan J., "Comverse, AT&T Connect," Newsday, October 7, 1992, p. A37.
— Dave Mote; Update: Suzanne L. Rowe
