Cornered! is a blog devoted, most of the time anyway, to telecommunications: local and global issues, technology, people and trends from the perspective of someone who's been reporting, analysing and commenting on the industry since the dark ages (BC - before competition). Sometimes serious, sometimes flippant, sometimes frivolous. Controversial, analytical, informative, amusing, but never boring; a vehicle for examinations of important issues and observations on my encounters and experiences in an industry where polarised views and hyperbole are the norm.
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Cornered! Mitel founder Terry Matthews' video play
Cornered! Mitel founder Terry Matthews' video play | Mitel founder Terry Matthews' video play |
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| by Stuart Corner | |
| Tuesday, 14 February 2006 | |
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Sir Terence (Terry) Matthews has an impressive track record of starting telecoms companies in the early days of new technology, building them into global enterprises and selling them at the right time. So his current interests should be a good indication as to what's hot or about to become so. Matthews co-founded PABX manufacturer Mitel Corporation in 1972 because he foresaw that a new technology offered the potential to seriously disrupt that industry. "In 1976 Mitel was the first company to make microprocessor-controlled PBXs and in five years we had a 20 percent market share, globally," he recalls. "Such a thing happens when there is big jump in technology." By the mid 1980s computer-controlled PABXs were passé and the big boys had caught up. Mitel revenues peaked at $US250 million in 1984 and its was sold to British Telecom after a year of falling revenues and "battling AT&T and Northern Telecom [Nortel]," according to a report in Forbes. Matthews walked away with $US30 million, and promptly set out to catch the next big wave: networking. He founded Newbridge Networks in 1985. That company, then listed, was sold that to Alcatel in May 2000 (months before the big telecoms crash) for $US7 billion. It had 6500 employees and annual revenues of $US1.8 billion. Matthews then successfully picked the next big transition: the demolition of the circuit-switched PABX industry, whose early years he had so successfully exploited, by new systems carrying and switching voice as IP packets: He bought Mitel back from BT! In fact he, bought the name and the communications systems division. Another arm that made semiconductors was renamed Zarlink Semiconductor and is now listed on the Toronto and New York Stock Exchanges. That was almost five years ago, and in that time Mitel's old business has shrunk by 95 percent. "Revenue from our SX200 and SX2000 [TDM PABXs] has fallen to five percent of our revenue in three years. 95 percent of our sales are now pure IP systems," Matthews says. "If I had not invested in R&D, I wouldn't be here today. Now I am smiling, but that has cost me over $US600 million in R&D." Mitel is a privately owned company, so does not disclose financials. But with a global workforce of 2000 it's safe to say it's a minnow compared the big names in IP telephony: Cisco, Avaya, Nortel, Alcatel, etc. So how is Matthews going to succeed in IP telephony now the original rush is over and everybody has well established and reliable products? Or will history repeat itself and he'll end up being squashed by the elephants? The answer in part is that he intends to concentrate on vertical markets. "The key to success is to understand vertical businesses and go after them with solutions...The verticals that we do incredibly well in are hospitality, hospitals, retail," Matthews says. "My philosophy is simply this: I don't just offer a replacement for TDM [circuit-switched] telephony I'm looking at each vertical business and seeing what makes sense for them from a business perspective. What improves sales, or profits or cuts costs. Now I am not just selling IP telephony, I am selling a solution that improves their business." So what, you may say. Doesn't everybody claim to be doing this? Yes, but Matthews claims to have got it right. "I am taking market share The revenues I get now equate to about 2000 systems per month and about half of those are going into competitors' sites." But Mitel is only half the stor, less really. Matthews has involvements in many aspects of telecoms as a venture capitalist and company director but his major play other than Mitel is March Networks, a company he founded in 2000. The two companies are very close. Matthews chairs both, they have the same HQ address, and he doesn't even have separate business cards: it's Mitel on one side, March on the other. According to a Forbes article in May 2001, Matthews was planning to merge Mitel and March Networks. That hasn't happened and today he is non-committal on the prospect. When I reminded him of the Forbes article he replied "timing is everything." Was a merger still on the cards? "It might be." March Networks specialises in IP video, surveillance, recording etc and in particular on integrating video with other types of corporate information. With the hindsight gained from four years of post 9/11 paranoia, you'd have say Matthews has probably picked another winner. But, and here is where the synergy with Mitel could really pay off, March Networks has a big focus on verticals. According to its website: "At March Networks, we focus on meeting the requirements of banks, retail organisations, transportation authorities and other government and commercial enterprises "We continue to develop sector-specific application software for these organizations to help them take advantage of information collected from their automated teller machines (ATMs), point of sale (POS) systems, global positioning systems (GPS) and other third-party systems. We are also developing video analytics software to address the emerging market for broadband-based video applications." So, it's IP, video, and vertical markets that get Matthews excited and if we narrow this down further and ask what verticals, then its retail that gets him really excited, and with good reason: the right solution could be very easy to sell because the benefits are so great. "In the US, the retail industry accounts for $US2.8 trillion sales," Matthews says. "But margins are very thin. Bottom line is only $US19 billion that's less than one percent. And here is the real shocker. Shrinkage [theft] is $US34 billion...Every dollar saved on shrinkage goes straight to the bottom line." Well retailers have been trying to cut shrinkage for years with lmited success. But Matthews is nothing if not ambitious. "If I could reduce shrinkage by 50 percent, that has a massive impact on the retailer." He reckons video surveillance integrated with other systems will have a big role to play: video at the point of sale, with archival footage for each transaction retrievable using the information on sales docket, video on entries and exits. "The retailers that are putting this in make a three of four month payback," he claims. March Networks is hardly a household name in Australia, but that could be about to change. Matthews is full of hints about big distribution deals and big sales, and they all point in one direction. March Networks is presently represented in Australia by Mitel, which has had a direct presence here for several years. Mitel's main channel to market is Telstra Business Systems. In mid 2003 Telstra was awarded a five-year telecommunications contract for the management of Woolworths' voice, data and mobile telecommunications across more than 1,500 operating sites, distribution centres and support offices in Australia and New Zealand. "The relationship will greatly enhance the efficiency with which Woolworths operates its communications network throughout Australia," Woolworth's CEO, Roger Corbett, said at the time. And did I mention that Matthews said something about a major retailer whose name begins with W?
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