Mitel Takes Aggressive Approach to Growth with Proposed Inter-Tel Acquisition

| April 27, 2007 | Enterprise Communications | Competitive Intelligence Report

| Analysts: Brian Riggs, Robert Arnold

Current Perspective: Very Positive
Vendor Importance: Very High
Market Impact: High

Event Summary

On April 26th Mitel Networks announced plans to purchase Inter-Tel for approximately USD 723 million. The combined company would be a leader in SMB communications systems, with operations in 90 countries, and revenues of over USD 800 million, twice those of Mitel today.

Analytical Summary

• Current Perspective: Very positive on Mitel’s proposed acquisition of Inter-Tel because it will eliminate a competitor in the market for SMB communications systems, expand the company’s reseller network, and advance Mitel’s ability to compete in the highly contested U.S. and European markets.

• Vendor Importance: Very high to Mitel because the acquisition of Inter-Tel would cause the Canadian-based company to double in size and revenue, as well as firmly establish itself in the United States. Very high to Inter-Tel because the company would gain the financial backing of an established communications systems supplier and would undoubtedly benefit from Mitel’s innovative product development organization.

• Market Impact: High on the SMB communications market because the proposed merger would produce a single entity with much stronger market share and channel footprint in the small to mid-size enterprise space. However, until details on corporate-level integration and product integration/rationalization are publicized, existing Inter-Tel and Mitel customers may be more susceptible to the lures of competitors.

Recommended Competitor Actions

• Cisco, Avaya, NEC, and Nortel should take every measure to protect their bases of SMB customers and reseller channels. Mitel will likely be making a push to leverage synergies with Inter-Tel that will improve product manufacturing, distribution, and perhaps pricing.

• Alcatel-Lucent, Siemens Enterprise Communications, and Ericsson should expect the combined Mitel-Inter-Tel to be perhaps stronger in the UK market, but not other European regions. Despite maintaining sales offices in many different countries, both companies are best entrenched in UK. The merger will have minimal impact outside the UK.

• SMB specialists Vertical Communications, ShoreTel, Interactive Intelligence, and 3Com should approach installed Inter-Tel customers during the next several months when uncertainty about future product development and support can readily be called out in attempts to win them over.

Recommended End User / Customer Actions

• Existing Inter-Tel customers should expect no near-term change in how their communications products are supported. Mitel is purchasing Inter-Tel to increase market share and revenue; therefore, it is not in Mitel’s best interest to make any rash moves that would alienate Inter-Tel SMB customers and resellers.

• Existing Mitel customers should acquaint themselves with the Inter-Tel managed service offering that has been a competitive differentiator for the company. It is likely that something very similar will be made available to them before long.

• Enterprises considering the purchase of new Inter-Tel PBX systems should seek guidance from the company on how an acquisition from Mitel will affect products in the long term. This guidance should include detailed product integration, R&D roadmaps, and information on what Mitel and Inter-Tel products will be covered under a combined company’s leasing/managed services program.

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