UC Consolidation Continues: Stage 2 Acquires Hosted VoIP Unit From CTI

A run of recent unified communications-flavored acquisitions suggests that consolidation among VARs, service providers and suppliers in the UC space -- a hot topic for years now -- shows no signs of slowing in 2012.

"There's going to be major warfare in the customer base when it comes to the UC market," said Joseph Gillette, CEO of Stage 2 Networks, a New York-based hosted VoIP specialist. "You have everyone from Avaya, Cisco and ShoreTel to the hosted PBX providers to Microsoft and Google. There are so many different angles on getting to the desktop and controlling that customers' communications medium."

Gillette would know. Having worked in the telco space for nearly a quarter century, he's seen plenty of hype cycles, next-big-things and crash-and-burns in the industry.

The consolidation wave sweeping through the broader UC space is just getting started, he said, as the hosted- and managed services models prove increasingly attractive to customers.

"Basically, if you're still in this game, you've proven out the business model," Gillette told CRN this week. "Or, you're tired and you want to get out."

Stage 2 is in the hunt for acquisitions, and in late December, bought the hosted VoIP division of Consolidated Technologies, the Port Chester, N.Y.-based communications VAR and Avaya Gold partner. It makes sense on several levels, Gillette said, with Stage 2 looking to broaden its hosted VoIP footprint and CTI looking to focus more on systems integration and its fast-growing Avaya business.

Financial terms of the deal were not disclosed. The two companies have had a strategic go-to-market relationship since 2006, but the history among its principals goes back much further. Gillette was a sales manager at Executone from 1988 to 1994, and it's there where he met former Executone Vice Chairman Stanley Blau, father of David Blau, founding partner and chief strategy officer at CTI. David was also an investor in Gillette Global Network, the CLEC Gillette founded in 1995, and later merged with Eureka Networks in 2000.

Stage 2, which is one of the New York area's top Broadsoft-hosted carriers, is adding about half of the CTI division's employees and also several supplier relationships it didn't have previously, including Windstream-acquired Paetec.

Stage 2 and CTI's hosted VoIP offering use the same platform, and also the same billing services company -- two facts that will make the integration seamless, Gillette said.

"Last month, customers got a bill from CTI, and this week they'll get a bill from Stage 2. That's it," he said.

Gillette also knew many of CTI's employees personally, he said, and the deal will also mean what he described as a "healthy amount" of cash flow by adding CTI's customers. Stage 2 also adds CTI's hosted call recording solution, Gillette noted.

Expect more deals like Stage 2's to emerge in the coming months, Gillette suggested, among UC players of all sizes and go to market strategies.

"If you look at this CTI-Stage 2 deal as a microcosm, we're able to take on the revenue but only a fraction of the operating expense," he said. "Think about how much more compelling that becomes the bigger a deal gets. I think you'll see more strategic buyers coming into our space."

There's far greater acceptance of hosted VoIP now than in previous hype cycles, Gillette said. Cloud computing and customer acceptance of the managed services have a lot to do with that, along with improvements in the technology.

"It's not foolproof, but it's light years ahead of where it was a decade ago," he said. "Customers realize now that, done correctly, this stuff can work as well as [on-premise] in a highly-cost effective way. The technology is also very disaster-resistant, more so than anything you're going to buy that's prem-based."

The Stage 2-CTI deal was one of several hosted communications-flavored acquisitions announced at the start of the year. Earlier Tuesday, Atlanta-based IP telecom and SMB managed services specialist Birch Communications said it had acquired the operating assets of AstroTel, including its IP network on Florida's West Coast.