Amdocs' $275 Million Mobile Bet

Providing billing and customer support to the telecom industry has been a highly profitable biz for Amdocs (NYSE: DOX). In the last quarter, the company posted sales of $587 million and net profits of $89.9 million.

However, Amdocs realizes that the telecom market is undergoing major changes -- and it certainly doesn't want to be left behind. Basically, Amdocs is the plumbing that telecom companies use to manage customers. It's not particularly easy, since these carriers usually have millions of customers. However, the Amdocs platform is built on dealing primarily with voice customers. But telecom is moving to more data services, such as ringtones, games, and business applications. To this end, Amdocs shelled out $275 million to purchase QPass Inc., which is a privately held software company. Amdocs has the money to build this out -- and is actually spending a good amount on R&D -- but this purchase gets the company in the mobile data services game quickly. After all, QPass manages millions of mobile data customers already, so the system scales very well.

QPass has built a sophisticated platform that allows companies to sell goods and services over virtually any network (usually mobile networks). It's a complete solution: activation, transaction processing, content sourcing, and customer care.

QPass' platform currently serves more than 180 million mobile subscribers for such carriers as Cingular Wireless, T-Mobile International, Vodafone, Sprint (NYSE: S), SunCom, Alltel, U.S. Cellular, and Skype, which is part of eBay (Nasdaq: EBAY). Over the past few years, QPass has handled more than 400 million paid downloads of games, ring tones, videos, etc.

True, the acquisition of QPass will have a short-term negative impact on Amdocs. Fiscal 2006 earnings per share is expected to decline about $0.01 to $0.02 per share.

But after this the QPass business should contribute to overall profitability. More importantly, the deal helps Amdocs transition its business as telecom moves away from voice to content and applications.

It's a significant market opportunity. According to JupiterResearch, the mobile commerce market is expected to reach $3.6 billion in 2006. Now, with QPass, Amdocs can move its more than 150 existing customers seamlessly into mobile, and continue its solid growth trend.

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Fool contributor Tom Taulli does not own shares mentioned in this article.