Mitel, Inter-Tel Join Forces

Mitels Perry McDonald

Mitel Networks Corp.s planned acquisition of Inter-Tel Inc. would give both companies the needed scale to break through the noise in the crowded IP communications market, offering their channel partners a broader product backed by a vendor with a better long-term competitive stance.

The combination of Mitel and Inter-Tel has the potential to be a major force in the SMB market for IP telephony, says Terry White, vice president of InfoTrack for Unified Communications. The research firm says in 2006 Mitel ranked fourth with a 10.6 percent share of the SMB IP telephony market, and Inter-Tel ranked seventh with an 8.9 percent share. The combined share of 19.5 percent will rank them first by a wide margin ahead of Cisco (13.5 percent) and Nortel (13.1 percent), White adds.

Inter-Tel claims 12 million end users; Mitel says it has 20 million.

Combined Product Portfolio
Product Users per location
Mitel 3300 IPC converged communications platform up to 65,000
Mitel SX-2000 (analog) up to 20,000
Inter-Tel 7000 IP system up to 2,500
Inter-Tel Axxess IP-enabled system up to 800
Mitel SX-200 ICP up to 600
Inter-Tel 5000 hybrid IP system (primarily IP but also supports digital and analog) between 25 and 250
Inter-Tel EncoreCX 30 or fewer
Mitel 3600 Hosted IP Key System 20 or fewer

Source: Company materials

Mitel announced in late April it will acquire Inter-Tel for $723 million. The deal, which is expected to close in July, gives Canada-based Mitel a stronger presence in the U.S. market and doubles its current revenue stream to combined receipts of $800 million. Both companies are privately held. Mitel has withdrawn its registration for an initial public offering pending the outcome of the transaction.

Mitel and Inter-Tel have state-of-the-art products and complementary channels to market. In particular, we are excited about the opportunities this partnership represents for Inter-Tels associates and partners, who we believe will benefit from being part of a larger, growing and dynamic organization that can compete more effectively in the marketplace, said Inter-Tel CEO Norman Stout in a press statement.

Doug Michaelides, vice president of global marketing for Mitel, says together the Mitel/Inter-Tel channel is about 700 strong. Mitel has a base of about 500 dealers. Inter-Tel says it has about 300. What little crossover there is among them, Michaelides says, is with partners that are covering a broad range of customer segments.

The Mitel systems tend to target slightly larger businesses, averaging 500 employees, while the Inter-Tel systems largely are deployed at companies with around 100 users. Together, the companies product lines include systems ranging from eight ports to 65,000 ports.

Both companies claim strengths in applications, but Inter-Tel brings a novel managed services model to Mitel. Inter-Tels TotalSolution service offers businesses a turnkey service including the IP PBX, local and long-distance voice services, Internet access, maintenance and unified communications applications, for a single monthly charge. The offer has been available for 12 years and about 75 percent of direct sales and 25 percent of indirect sales are for the managed services offer. Michaelides says Mitel has leasing programs and managed services, but nothing that is a one-to-one match or as widely deployed as the TotalSolution offer.

Analyst White says he expects to see Mitel expand Inter-Tels managed services offer to include the Mitel product line. That managed service is a significant competitive differentiator in the SMB market, he explains.

Indeed, Michaelides says Mitel intends to extend this offer to size-appropriate Mitel systems and across the channel. We believe one of the key barriers to IP telephony adoption is complexity, he says. Reducing the complexity is a differentiated offer.

The acquisition of Inter-Tel and its channel program comes just as Mitel has determined to make some changes in its own partner initiatives. It has hired Perry McDonald away from Nortel to serve as its director of channel and field marketing for North America. McDonald joined the company this spring after serving as Nortels global director of channel marketing and the primary architect of its award-winning Partner Advantage program.

McDonald says regardless of the outcome of the Mitel/ Inter-Tel deal, his goal is to simplify channel engagement and enablement. He says it will be fall before the evolved Mitel channel program will be unveiled, but several new initiatives will be rolled out this summer. For example, he says that the program will be more performance-based. This means there will be additional incentives for IP-related sales, for instance. More than 90 percent of Mitels channel sales are IP systems, Michaelides notes.

As McDonald moves forward with existing plans, he also expects to be mindful of the pending merger and expects the best practices from the Inter-Tel program would be adopted. Its too early to speculate about the final structure, he says.

Presently, Mitel has a four-level program, including Authorized, Silver, Gold and Platinum. Accreditation is skills-based rather than volume-based. Inter-Tels program includes four levels of participation (Silver, Gold, Platinum and Diamond) plus an exclusive dealer category. Inter-Tel does not use distributors while Mitels products are distributed by Tech Data Corp. and GrayBar Electric Co. in the United States.

Mitels longstanding partner advisory council convened in May and the companys annual partner meeting will be held at the end of June. In both forums the program renovation and the Inter-Tel integration were planned topics of discussion.

One of the considerations might be channel assimilation. Mitel and Inter-Tel both have very loyal channel partners, who have competed against each other. Mitel will need to manage this situation to minimize the potential for channel conflict. That may be why they brought in McDonald from Nortel, says White. He also notes, Inter-Tel has a very disciplined direct sales force, which could be a valuable resource in support of Mitels plans to move up-market, selling IP telephony to larger enterprises.

Mitel sells almost exclusively through dealers with the exception of its Direct Touch program, which is a channelagnostic group that maintains relationships with larger customers. Service delivery normally is handled by a channel partner even in these accounts, says Michaelides.

Inter-Tel, in contrast, has a direct sales force and 57 offices throughout the United States. Similarly to Direct Touch, Inter-Tel has One Inter-Tel, a program whereby each branch has a manager, who is channel-agnostic and is responsible for sales for their assigned regions.

Inter-Tel Inc.
Mitel Networks Corp.

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