Wednesday, May 2, 2007

Mitel acquires Inter-Tel, signaling more consolidation to come

By Andrew R. Hickey, Senior News Writer
01 May 2007 |

Mitel late last week acquired Inter-Tel for $723 million, heralding a new trend of consolidation that will better position VoIP vendors to compete against the incumbent big boys like Cisco and Microsoft.

The combination of Mitel and Inter-Tel, a full-service business communications solution provider, allows the two vendors to better target small and midsized businesses (SMBs), which have been gobbling up VoIP solutions as the enterprise VoIP market has started to dwindle. Both vendors offer tools for unified communications, network management and applications such as messaging, contact centers, mobility and collaboration.

According to a statement released by Mitel, the deal positions the merged company to gain traction in the SMB space while also allowing for expansion into enterprises. Mitel is typically known for its global reach, while Inter-Tel has a strong channel and support.

In a statement, Mitel CEO Don Smith said: "By bringing together the unique strengths of each company, this transaction accelerates our growth strategy. Inter-Tel's achievements, particularly in North America, include creating successful managed service offerings that we intend to extend to Mitel's resellers and customers worldwide. Mitel's scalable solutions and broad geographic reach will drive growth in the large enterprise sector, complementing recent moves by Inter-Tel to expand its addressable market."

Yankee Group senior vice president Zeus Kerravala said the acquisition, which he billed "a consolidation play," is a sign of things to come. "It gives Mitel a very strong footprint in the SMB space, although I think Mitel's vision and technology were much better," he said, adding, "Inter-Tel had a decent size channel." Nemertes Research analyst Irwin Lazar agreed, noting that the acquisition's "impact to other players is a more competitive SMB market, with Mitel gaining new channels and visibility."

In the short-term, Mitel users will see little impact, Kerravala said, but Inter-Tel customers will benefit from Mitel's strong vision in the VoIP space. He added that SMBs will be the first to reap the benefits of the pairing.

"They'll get better products faster than if [Inter-Tel] had remained stand-alone," he said. "Mitel has been one of the most innovative companies in the IP telephony space."

Kerravala compared the Mitel/Inter-Tel acquisition to the recent partnership of Microsoft and Nortel Networks -- an innovative company pairing with a struggling company to offer more VoIP options.

"I think we'll see further consolidation between vendors that have vision of where the market is going and ones that don't," he said. "I think Microsoft partnering with Nortel was an example of that. Microsoft has a very unique vision of the market. Nortel was old and tired." The Mitel/Inter-Tel deal also draws attention to the rapid uptake of VoIP solutions in the SMB arena, where deployment has been swift and continues to grow. Most of the larger vendors -- Microsoft, Cisco and now Mitel -- are competing to corner an SMB market that's ready to explode.

In his blog, Lazar noted that both Mitel and Inter-Tel competed in the SMB VoIP market, and both have strong solutions, although there is some overlap that may create challenges when the deal is finalized.

"My guess is that Mitel saw two primary gains with this acquisition," Lazar said. "The first is Inter-Tel's large network of service and support offices throughout the U.S.; the second is Inter-Tel's strength in the SMB market. Inter-Tel also offers managed services that Mitel can build upon."

Kerravala said the acquisition is in line with VoIP vendors setting their sights on SMBs as massive enterprise deployments start to fizzle out.

"All large vendors are targeting SMBs, because VoIP is being adopted by SMBs, where it's sluggish in the enterprise space," Kerravala said. "VoIP is complex. [It's] easier to deploy in small environments and easier to prove the value."

For enterprises, VoIP's complexity is fueling a decline in deployments. It requires many more moving parts and large-scale network upgrades, and it forces companies to split their resources into datacom and telecom groups -- all challenges that are virtually nonexistent in SMBs.

Kerravala said he envisions more consolidation plays in the near future as vendors fight for the growing, but relatively fresh, SMB VoIP market.

"I think you'll see a little more consolidation," he said. "It takes a company with good technology and vision [Mitel] and adds a strong U.S. channel [Inter-Tel]. One plus one equals three."