Mitel Upgraded by S&P

Mitel got a boost when Standard & Poor’s rating agency raised Mitel’s credit rating to a B+ from a B.  Good news for Mitel customers and people considering Mitel who have had competitors whispering awful things about Mitel’s health.

On a practical level, this upgrade will help Mitel borrow money at lower interest rates as well as potentially drive more institutional money into Mitel the investment vehicle (versus Mitel the company that makes telephone systems). This could increase the stock price and thus make Mitel employees happier than they already are, with the stock price almost tripling over the last year. It can also help attract talent, as the story right now is of a company on the march, picking up market share and getting their financial house in order.

S&P specifically noted that the Aastra merger is going well. We were hopeful of this as the two companies rarely competed head to head, at least in North America. Mergers are a scary event for companies, with many good companies brought low by a botched marriage in our experience.  So far, so good, it appears.

As a reminder, you can always check out the numbers for yourself – Mitel’s stock ticker is MITL.

Zultys Wins 2014 Product of the Year

Zultys MXvirtual wins Best Unified Communications platform in 2014

We’ve been saying the Zultys MX telephone system is pretty cool for some time.  The good folks at ‘Internet Telephony’ magazine agree – they recently awarded Zultys with the 2014 ‘Unified Communications Product of the Year’ for the MXvirtual product.

Rich Tehrani, CEO of TMC, is quoted as saying:

“I am excited to proclaim Zultys as a 2014 recipient of TMC’s Unified Communications Product of the Year Award for their innovative product, MXvirtual. Our judges were very impressed with the ingenuity and excellence displayed by Zultys in their groundbreaking work on MXvirtual.”

Which tells you nothing about why the award was given, but definitely makes this a legit post, since I used a quote from someone else.  Mind you I lifted that quote entirely from the Zultys press release.

I would hazard a guess that the MXvirtual was chosen for the award because it is the only telephony platform that has an identical user and administration experience no matter how you deploy it.  Whether you rent the phone system hosted in a Zultys-managed environment in a traditional cloud telephony model, install the phone system in a data center or your server cluster, or use a Zultys-branded server installed in your office, nothing changes on the feature and functionality side of things.  In a completely unique-to-Zultys configuration, you can even have these different configurations networked together, so your hosted phones can failover to a local server.

Other advantages of the MXvirtual platform include SIP-at-the-core architecture that is unlike the competition, where it is SIP at the product edge, usually involving a conversion somewhere.  Customers should care about this because conversion means latency, and latency – lag in sending data –  is the enemy of a pleasant-sounding telephone call.  There are few things more frustrating than a phone call where it feels like you are slowly shouting into a well, hearing your own echo.

Being built using SIP from the ground up also means we can deliver on the promise of a shared standard.  Pick the phones you like, from any manufacturer that supports SIP. Connect to a SIP service provider and make your phone calls over the internet, instead of using gateways and carrier edge devices to use old T1 and PRI technology on a 21st century phone network. It means the most choices for deploying phones, which are the most expensive part of the installation, and the best user experience and audio.

Two CLECs, One Cup of Consolidation

Industry consolidation continues as another player is snapped up.  tw telecom purchase price of $5.7B as reported by the NYT, who capitalized the spelling of ‘tw telecom’ like a bunch of barbarians.

As tw telecom is a Local Exchange Carrier in the grand tradition of ye olde AT&T and Verizon, (the cable TV and internet assets stayed with TimeWarner Cable in the spinoff), we won’t be seeing anything too radical come out of this merger such as a combination of cable and telephone network connections in a billing package.

Level3 is better at long haul internet and companies with large, distributed footprints, and tw telecom is in the trenches providing smaller companies with phone and internet service in US cities. If you were with Level3 for a corporate internet and WAN plan, maybe you can get a more consistent menu of services across locations with tw telecom provisioning in the future. If you were with tw telecom, you were probably too small to care about Level3 getting you MPLS connectivity across an ocean.

On a personal/anecdotal note, we like Level3’s responsiveness when we worked with them on a 60+ location telco rollout, and we find that tw telecom’s local sales and service staff are very polished and responsive.  In our home market of SoCal, we bump into tw telecom more than we do Level3, which is the local/national split that is going to result in oodles of synergy as per this Marketwatch article.

Now, some random comments on the numbers.

  • So total EBITDA will increase by $200M from synergy. tw telecom currently makes $125M a quarter in EBITDA ($500M/yr).  So 11x earnings (8x earnings counting synergy) and assumption of $2B in debt. Level3 loses money every year.
  • tw telecom net income is $36M on $1,560M in revenue in 2013. 2.3% margin. That is pretty stellar in telecom. Again, Level3 loses money every year.
  • Combined market share is 6% per the WSJ. Not bad, but still small in a commodity business with shrinking margins.
  • Level3 says they can cut costs by $2.2B in the WSJ article… not sure if that is over 10-11 years to get your $200M/yr savings number or if we have very different stats popping up. Level3 is spending on average $699M on interest expenses on its own debt.
  • WSJ says that savings on cross-connect fees is the big win here, where Level3 won’t have to farm out local connections as often if they own a CLEC like tw telecom. I’d think tw telecom’s fiber rollout is another huge part of this, as they can offer end-to-end fiber that would be a real differentiator over other carriers that are making a network of copper and fiber connections.
  • Level3 CFO has said corporate data prices have stabilized.  Interesting, but we think fiber rollouts will keep putting downward pressure on data prices. Maybe not so much at the league Level3 plays in, though I would think those are the smartest, toughest customers.
  • Important to note again that Level3 does not really make any money. At least not Net Income by GAAP standards.  In terms of cash flow, they are all over the place.
  • The budget for R&D for both companies is zero.  Not one penny put into research. In case you were wondering if they are utilities or high tech companies.
  • Looking at Level3’s balance sheet, you have $8b in debt offset by $8b in property. This explains why anyone would lend them money, I suppose. The new entity will have $10B in debt and $800M in interest payments a year assuming things hold steady.

If I was looking at either company, I might be a little nervous, because sometimes mergers in telecom are messy.  That said, there is not all that much overlap with these two, at least in our market. Who knows, maybe Level3 will benefit from working with a more efficient operator.

Points on Industry Research

Cat on a phone, calling Extenda

Working in an industry that is not exactly front and center of the tech world means that we get pretty scant mainstream press coverage and have surprisingly little data about our favorite subject, ourselves.  In practice, this means I have to fire up those ol’ Statistics 101 and critical thinking neurons all the time to question industry research. Often this research is dragged into the sales process, used to prove a competitor is the Most Awesome. I want to take a look at just one such report to show how a headline statistic thrown out by a vendor might not be as helpful as they want us to believe.

Nemertes Research provides research for a variety of enterprise software and technology verticals and markets, and is oft-cited by a certain competitor we seem to run into on every deal.  Their 2013 report “Operational Cost Drives Stark Differences in First-Year Telephony, UC Costs” is actually pretty interesting and, on balance, a great overview for an IT or C-level manager thinking about biting the bullet and implementing a phone system from this century, or the underling hoping to build a business case for just such a move.

Where companies have to be careful is when vendors use the findings of an independent consultancy report to buttress arguments made when trying to take your money earn your business. For example, this report shows that NEC and Shoretel have a very low total cost to a business in the first year of implementation. The consultants have thoughtfully calculated not just the actual phones and whatnot you would need off the bat, but first year maintenance, the time your staff spends on the implementation times their pay, and other things typically considered ‘soft costs’ and left off the vendor proposals.

Upon closer inspection, it is important to note that there is a very small sample size to draw from.  I would not fault Nemertes – goodness knows it is hard to get this information out of busy IT people who are probably huddled in a corner in the fetal position after finishing their VoIP implementation. Nonetheless, the survey was based on what appears to be 211 valid responses to uncover information about 7 brands, so about 30 responses per brand or so.

Where I will fault all of these industry consultancies is with the release of their data sets. None of them release their data sets with the report. I find it so odd that companies are allowed to produce statistical claims, and have these claims repeated for real dollars, and there is no peer review of the data behind the claims. I have no doubt the data is valid, but I took enough statistics and econometrics to know that you can also justifiably lop off outliers – as the survey takers state that they did – to change your results, in the name of proper data modeling.  I am not singling out Nemertes at all – I am pointing a finger at the weird tech shadow world of report writers that aren’t regulated and aren’t really held accountable for peer review of their work, for stats that are wildly off, for bad predictions, and bias towards specific brands and solutions.

Of these 30 responses, the Avaya and Cisco responses seem to come from pretty large companies.  The median size of the Avaya sample company was over 1,000 users, and for Cisco, over 500 users.  In my world (moderately successful Mitel/Zultys/NEC dealer in the 2nd biggest city in the US), customers of this size would be my VIPs.  And my VIPs tend to have very robust, sophisticated call centers attached to their phone systems that drive up costs of implementation, or in the case of  this survey, the per seat costs. In fact, both of these companies are very active in the contact center market, much more so than NEC and Shoretel, companies that do not have a robust native contact center option at the time of this writing.

The survey does break down costs further in by brand and for <1000 and >1000 users. That Avaya has start up costs of $1,000 a seat, far ahead of the other brands, in the sub-1000 user market makes me wonder if they did have some contact center apps in these installations. When I compete with Avaya, they are not typically twice as expensive as my products, if we are pitching to the same requirements.

Meanwhile, the winners of the Total Cost of Ownership challenge, NEC and Shoretel, have median company sizes in the survey of… well we don’t know.  We know the NEC range is 6 to 1,500 endpoints (phones), and the Shoretel range is 85 to 1,850 phones.  The largest Cisco system in the survey is 175,000 phones(!), for some contrast.  If we assume a price tag of $500 a user, netting $87.5M, a single Cisco sale did what Shoretel as a company does in a quarter.  My point is that these companies are playing in very different leagues. As an NEC dealer, I can tell you that the 6 phone NEC is dirt cheap, and will not ship with much that an enterprise user would recognize – there is no desktop video conferencing or real-time chat/supervision/reporting baked into the deployment.

There is a lot of great information when you dive into the operational costs, and specifically the information on Microsoft’s Lync solution does match up to what I hear from customers.  Namely, like an Italian car from bygone eras, they are not so expensive to install, but extremely expensive to keep up.  In the case of Microsoft, it is not so much reliability as it is that the mechanics are expensive, though this may come down if Lync really takes off as a viable phone system competitor. The report notes that third party spending on Microsoft is high because the product is new, but I would add it is also because the product is sophisticated and outside the wheelhouse of your more typical IT shop that focuses on SMBs and knows Exchange, AD, Server and the desktop just fine, but that might not have the requisite certifications to even get support on the Lync product.  Microsoft professionals with the alphabet soup of certifications on their business card and the pedigree required of high end IT shops tend to charge a lot more per hour.

Similarly, Cisco’s high SmartNET costs show up in the data, and Avaya, NEC and Shoretel are not terribly expensive to keep up down the road, making me feel that the data here matches up to my extensive though still necessarily anecdotal experience. So maybe I just proved a victim of confirmation bias, and you can chuck this post in the bonfire, too. The takeaways I have for a reader of this post stand; question the headline statistics on these reports, and view these stats as a helpful snapshot of general trends, and not the be all and end all on the topic.

Cheaters. Telephony edition

So I was looking at improving our company’s inbound lead generation (see: the blog you are reading) and started kicking the tires on various services such as Marketo, KISSmetrics and Hubspot.  I click on Hubspot and, lo and behold, Shoretel is the video case study, front and center on their website.

I am an avid admirer of Shoretel’s marketing, and I think they more than any other company shook up my industry’s stale approaches when I started in my role 10 years ago. We were being trained to show up on site, do a headcount, play up the one or two features that our system excelled at, and turn around a quote quickly.  Cisco was winning deals at the time just by having the Cisco logo on a business card, but the bloom was off their rose by the early-to-mid 2000’s. Shoretel came in with a great, rehearsed demo, some marketing slicks from consulting companies no one had ever heard of, and their people spoke to different constituencies extremely well. Where Cisco was a Rube Goldberg machine and traditional PBX manufacturers appeared steeped in the dark arts, Shoretel sold on ease of use and simplicity. They also opened up conversations about architecture and disaster recovery that old-line phone guys really wanted to avoid for fear of looking like the dinosaurs that they were.

An 'establishing shot' I believe of where Vader chokes his lieutenants.

An ‘establishing shot’ I believe of where Vader chokes his lieutenants.

All that said, I compete with them every day, and could write a novel trashing their product. But instead, I want to return to our dive into this fun marketing piece from our pals at Hubspot.

Our story begins here at Shoretel HQ, where existing marketing approaches from competing providers is not working for our dear friends.

Cut to an interview with a VP or EVP of marketing at Shoretel who is the star of this show. We learn more about driving inbound leads and the great set of tools provided by Hubspot.

The Wizard

The Wizard of Marketing

There are lots of great shots of what appear to be this guy’s home office, since the corporate glass and steel box did not seem to have any balconies overlooking a forested valley.  I certainly thought that I would work from home rather than that Inatel-looking cubicle farm we saw in prior shots.

WTF

Lower right is the two tone smoking gun

Then, as if seeing the lady of the lake emerge from the fog and mist, we see glimpses of, what, it can’t be… but it is.  A Cisco phone at this guy’s house. B-b-b-but I thought this was a Shoretel employee?  Is Hubspot haunted? Shaggy? Thelma?

 

No dear reader, this is video proof that Shoretel Sky uses Cisco phones, and not Shoretel phones. And proof that bad feng shui (working with one’s back to the window) leads to bad things such as blowing your cover, exposing the filthiest secret of all.  Soylent Green is people, and Shoretel Sky does not appear all that Shoretel compatible.

Mitel UCC v3 Released

Microsoft Lync is better with Mitel

Mitel’s seamless, classy integration into your Microsoft Lync environment

It is official, June 30 is the release date for the new version of Mitel’s UCC suite of applications, UCC v3.0.  This is a big release by Mitel standards with a lot of changes. We are excited about a few key elements.

As previously noted, Hyper-V support is here, as is VMware vSphere v5.5 support. This is a great solution for companies that are used to the way our competitors deploy their phone systems and applications: with a menagerie of servers or multiple virtual applications to manage and keep running.  This solution consolidates messaging, user deployment and unified communications applications, as well as off-site TeleWorking and security, to a single virtual instance.

Speaking of user deployment, the UCC v3 allows for a simple user rollout by linking to Active Directory.  This greatly speeds up deployments and makes it simple to manage your Mitel system.

Multimedia capabilities have also been extended to the smartphone, with peer to peer video available via the Mitel smartphone app. I expect personal grooming to be improved across all of my customer base once video calling becomes a standard part of business communications.

Integrations across the enterprise are expanded with this release as well.  Lync deployments will benefit from enhanced Mitel integration.  Google, Office 365 and Salesforce users will also find that there are a number of enhancements on the Mitel platform for their use, including calendar integration with presence, email integration, as well as click-to-call, presence and IM integrations. We see more and more adoption of these platforms and less traditional integration to on-site CRM software.

With the initial UCC release, Mitel did a great job of fixing the most irritating part of their platform for vendors and customers: their licensing.  The old alphabet soup of confusing licenses and license dependencies was poured into the trash, and replaced with 3 super simple license bundles: Entry, Standard and Premium. Now, a 4th tier (Basic) has been added, for users that just want a phone, while Entry users can see coworker presence on the bundled PC and web app. Right out of the gate, customers with a single UCC Standard or Premium license get a 10-port conference bridge license at no charge, too.  This makes it very difficult for Shoretel, Cisco, Avaya and NEC to compete. Each of these manufacturers needs to add an external server or, in Avaya’s case, a sorta-virtual-sorta-dedicated-server-image, to provide secure dial-in conferencing. But then again, these manufacturers really are in love with the miniature server farm model.