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Toshiba deal reflects Mitel's UCC market strategy

As it acquires Toshiba's unified communications assets, Mitel says it is keenly focused on the UCC market, expanding its customer base and moving organizations to the cloud.

Mitel is always trying to acquire something, it seems. Three years ago, the telecommunications provider tried to acquire business telecom company ShoreTel. Two years ago, Mitel acquired mobile carrier Mavenir, then sold it shortly thereafter. Last year, Mitel missed out in its bid to acquire Polycom, a communications provider with a focus on video.

Just last week, Ottawa-based Mitel said it is buying Toshiba's unified communications (UC) assets, after Toshiba said in March it was leaving the UC market. The Toshiba deal, albeit fairly minor, highlights the state of flux and consolidation in the unified communications and collaboration (UCC) market and for its customers.

Although the Toshiba deal doesn't represent a traditional acquisition, it re-emphasizes Mitel's focus on the UCC market. By picking up Toshiba assets, Mitel can expand its customer base in North America and give Toshiba customers "a path forward," Mitel President and CEO Rich McBee said.

Toshiba announced in March it was winding down its North American telecommunications services as part of a global restructuring. The last day for dealers to submit Toshiba orders is May 22, which created some urgency for Mitel.    

Expand the base, move to the cloud

Mitel announced last week it signed a memorandum of understanding to transfer Toshiba Corporation's UC systems business assets, support obligations and existing inventory to Mitel. The transaction is expected to be completed this summer, and Mitel aims to provide product and service continuity for Toshiba customers. The financial terms of the deal were not disclosed.

We're looking to expand our base, move that base to the cloud and sell applications. Anything in that rhythm is where we're going to be hunting.
Rich McBeepresident and CEO, Mitel

"We're in this time period now where we needed to publicly reach out to customers and tell them they're not going to be stranded," McBee said.

Toshiba focused mainly on the small end of the UCC market, although it has some large clients. The vendor has customers in the cloud, on premises and a small amount of hybrid setups. Assessing long-term goals, Mitel has a pointed plan for its customers.

"It's pretty simple," McBee said, "we want to move them into the Mitel path to the cloud -- that's what we intend to do. Our strategy has always been to expand our base."

McBee said it's too early to tell how many customers Mitel is actually gaining. Toshiba had about 350 channel partners, but not all of those will necessarily move to Mitel. Telecom rival ShoreTel could also target Toshiba's channel partners, said Irwin Lazar, an analyst at Nemertes Research, a tech advisory firm based in Mokena, Ill.

Deal highlights Cisco, Microsoft dominance

Other cloud providers in the UCC market, such as RingCentral and 8x8 Inc., also had their eyes on Toshiba, Lazar said. But the Toshiba deal won't exactly move Mitel's needle going up against UC juggernauts Cisco and Microsoft.

"It helps Mitel gain a little bit of market share, maybe boost their cloud business," Lazar said. "It's more about competing at the low end of the market against the cloud providers."

Moving beyond telephony?

Amid a steady flow of mergers and acquisitions in the unified communications market, many vendors are looking to diversify their products as the enterprise telephony market wanes.

UC vendor Mitel, like Avaya, is pretty focused on communication-enabled business processes (CEBP), according to Irwin Lazar, an industry analyst at Nemertes Research. CEBP, much like communications platform as a service, integrates communications into business applications.

Additionally, as companies start to deploy internet of things (IoT) offerings, they might consider the communications capabilities that need to be connected into IoT services. Mitel is looking at building and providing communications services that support internet-connected devices, Lazar said, which provides a bigger market opportunity in the long term instead of selling phones.

For instance, Mitel has worked with a telecom operator in France to outfit an airport with IoT services. If an airport alarm goes off for a fire or intruder, for example, the alert appears on people's phones. Within the alert, people can access maps and determine their next steps.

In a blog, UC analyst Dave Michels largely applauded the Mitel-Toshiba deal, but added, "I do have concerns that Mitel is not prioritizing enough on new products or making more strategic acquisitions."

Mitel's acquisition history, like other UC vendors, is dotted with hits and misses. It acquired mobile carrier Mavenir for $560 million in early 2015 and aggressively pursued mobile capabilities, but then sold the company in December 2016.

Remaining active in the UCC market

As part of a previous strategy, Lazar said Mitel was going to buy up the UCC market and targeted ShoreTel and Polycom. Those deals never materialized. After Mitel was close to acquiring Polycom, private equity firm Siris Capital swooped in with a higher offer.

Mitel did get $60 million from Polycom in a termination fee, however. Lazar said he was surprised Mitel did not take that windfall and make another run at ShoreTel.     

"It seems [Mitel has] shifted gears a little bit," Lazar said. "It doesn't seem like they're aggressively trying to buy up the market as they were two years ago."

Although McBee cannot comment on potential acquisitions in the future, Mitel could remain active in the UCC market.

"We're looking specifically at the UCC space -- that's where we're focused now," he said. "We're looking to expand our base, move that base to the cloud and sell applications. Anything in that rhythm is where we're going to be hunting."

Next Steps

UC market shifts could benefit buyers.

Consolidating UC market could mean lower prices.

Organizations wait out market consolidation.

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