Unified Communications Industry Consolidation - Lessons Learned from Ericsson Acquisition

Opinion piece by Dorota Oviedo, Research Analyst, Unified Communications and Collaboration Information & Communication Technologies, Frost & Sullivan

The unified communications (UC) industry has seen a strong consolidation trend, which Frost & Sullivan also expects to dominate the competitive landscape in the near future. Over the last years, Mitel acquired Inter-Tel, Aastra bought Ericsson's PBX business, and NEC purchased Sphere. More recently, privately held Avaya won a stalking horse auction for Nortel Enterprise Solutions, while Cisco announced that it will follow its previous acquisitions of WebEx, Jabber, and Postpath with that of Tandberg. Further industry announcements are anticipated, and are likely to include non-traditional telephony players.

­It is interesting to see on Aastra's example what challenges an acquisition can create for both buyer and seller, and how these can be faced. In order to better understand Aastra's position, let us first look at the journey that led Aastra to the Ericsson acquisition.

Aastra's Consistent Growth Strategy

Aastra Technologies is one of the largest players in the European business telephony market. Its aggressive strategy of organic and acquisitive growth has positioned it among the top three European vendors and one of the leaders globally in enterprise communications. While other industry players are currently struggling, Aastra has had over a decade of consecutive profitable quarters. It has successfully moved up the infrastructure value chain. Since 1993, when the company started to specialise in telecommunications it has had a history of acquisitions that shows a consistent growth strategy and total focus on enterprise communications.

Importantly, all new acquisitions have been complementary, in terms of technological expertise, product portfolio, distribution networks, and geographic presence. Starting with the acquisition of Nortel's analogue telephone business, the company has grown to enter the PBX market with the acquisitions of Ascom's PBX division (2003), EADS Telecom (2005) and DeTeWe KG (2005). Ericsson, its latest and largest acquisition in scale further complements both its product portfolio, with solutions for large enterprise and mobility, and its geographic reach, with new channels into emerging markets.

Acquisition of Ericsson Opens New Channels

The acquisition of the Ericsson Enterprise Communications Business substantially expanded Aastra's customer base in Europe and globally, especially in markets such as Eastern Europe, Middle East and Africa, Asia Pacific, and North and South America. While prior to the acquisition Aastra had operations in 15 countries, it now has a presence in over 34 countries. New channels into emerging markets allow Aastra to take advantage of the future growth in those regions, and Aastra became the leader in Western Europe, now having complete coverage of the European region.

The acquisition was also very complementary to Aastra's existing product portfolio. The addition of Ericsson's Enterprise Communications extended Aastra's reach in IP Communication Servers, UC applications, and integrated mobility with the concept of "one phone".

Challenges after Acquisition

At the analyst event in Stockholm (6th October 2009) Tony Shen, President and co-CEO of Aastra Technologies, reflected on the year following the acquisition, biggest challenges the company faced, and toughest decisions he had to make. The ability to address "people issue" is a critical factor.

Getting the people to work together and accommodating each other seemed to be the biggest challenge for Aastra and Ericsson. Although Aastra has gained experience from its previous acquisitions Mr. Shen noted that people forget how is it like to be acquired. He stated that the company not only had to win the new customers over, but also, and just as importantly, the employees.

Organisational cultures of both Aastra and Ericsson have strong commonalities based on Western European cultures. Willingness to work together is vital, especially so when the function is global and thus very high degree of interaction is necessary - as in case of research and development or supply chain. Succeeding in overcoming the initial resistance to change is very rewarding as synergy is being created.

When trying to integrate two distinct organisations through a halfway solution, one must realise when they compromise. Frequently, both approaches have their advantages, so they need to be combined in such a way to be able to benefit from the two. While Aastra is much decentralised, Ericsson used to be a centralised organisation. The management tried to gain from both on different levels.

Acquisition of Ericsson took place just before the actual economic recession started. A down economy, coupled with European labour protection legal environment, obstructed and added to the complexity of the process. Aastra's management philosophy is to "prepare for the worse" by keeping sound financials and fit organisation structure, which enables it to adapt to changing conditions.

In any consolidation there always will be some level of redundancy. As a consequence some workforce reduction might be necessary. This is also one of the toughest decisions to be made throughout the process. Additionally, some overlapping of products may exist. Company must identify its core competencies and converge products in its portfolio, while at the same time be cautious not to loose the customers. Aastra is also expected to do so in the coming years.

Right Track

The integration process has not been totally completed yet. However, Aastra seems to be on the right track. The analysts' community was impressed to see it remains profitable in such unfavourable economic times. Mr. Shen emphasised that in a market with so many uncertainties, Aastra is very well placed to become one of the major global player. Although it has grown in size and reach, it is important for the company to retain the practises that have been central to its success so far: agility, flexibility, and a close relationship with the customers.

The company clearly demonstrates a well thought-out and careful approach. Currently Aastra needs to focus on accomplishing full integration. However, it is going to be interesting to see what will be its next acquisition target.

Dorota Oviedo is a Research Analyst for Enterprise Communications & Collaboration group at Frost & Sullivan. She focuses on monitoring and analysing emerging trends, technologies and market dynamics in the Enterprise Communications market in Europe

Posted to the site on 27th October 2009