Cisco Partners Scoff At Mitel-Polycom Merger, Say Integration Could Derail Innovation

One of the main reasons why Mitel is acquiring Polycom in a blockbuster $2 billion deal is to square off directly against unified communications rival Cisco Systems. But Cisco partners say they aren't losing any sleep over the proposed merger and, in fact, say the merger could backfire by holding up innovation while the massive integration between the two companies takes place.

"What's the threat of a $2 billion company against a $50 billion company when Cisco is much wider and deeper on all aspects?" said one top executive from a solution provider who partners with both Cisco and Polycom, who declined to be named.

"If you imagine a $1 billion company acquiring another $1 billion company -- that's a major, major, major acquisition. Just in relevant terms," said the executive, whose company is a Cisco Gold partner. "That's opportunity for Cisco."

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In October, Elliott Management -- which owns stakes in Mitel and Polycom -- filed a statement with the U.S. Securities and Exchange Commission that said the market is ripe for consolidation and it is encouraging Mitel and Polycom to combine their telecommunications and videoconferencing expertise.

In the letter, Elliott Management said the merger was needed in part because of heavy competition from large vendors, specifically citing Cisco.

"Cisco is a formidable competitor with a strong collaboration portfolio and the ability to drive large, bundled sales through strategic customer relationships," wrote Elliott Management in the filing. "These relationships provide opportunities for Cisco to successfully win sole-source deals with customers and displace competitive vendors."

On April 15, Mitel agreed to acquire Polycom in a nearly $2 billion deal. The acquisition is subject to shareholder and regulatory approval and is expected to close in the third quarter of 2016.

Solution providers said it will likely take another 12 to 18 months after the deal closes before the company will reap any benefits of a combined platform. Although Mitel has a history of smaller acquisitions over the past few years, such as Mavenir and Oaisys, Polycom will be more difficult to integrate, they said.

"Time is not on Mitel's side in that sense because that provides the opportunity for Cisco to keep on maturing [its] Spark call control offering ... and keep expanding it. That just gives them the time to do that," said the Cisco Gold partner. "It is opportunistic for Cisco during this time."

In an email to CRN regarding the acquisition, Mitel Chief Marketing Officer Wes Durow wrote, "The combination of Mitel and Polycom will create a new industry leader whose sole focus is on making communications and collaboration more seamless. No one else can do that today."

Jim Kruger, chief marketing officer at Polycom, said in an email to CRN that the proposed acquisition "strategically rounds out both company's portfolios, ensuring our customers have access to the most seamless and complete communications and collaboration solutions available today."

"By combining with Mitel we plan to expand our solutions into cloud and mobile environments, while also increasing our scale, presence and competitiveness in the market," said Kruger.

Polycom partners said Mitel will obtain Polycom's video expertise, which will be added to its telephony and cloud solutions and will compete directly against Cisco. But the only threat a Mitel-Polycom combined company would have on Cisco is on the lower end of the market, said another top executive from a solution provider ranked on the 2015 CRN Solution Provider 500 list.

"They're going to come at it more from an SMB-type play. I don’t think the threat at the higher end is there as much as it is on the lower end," said the executive ranked on the CRN SP500 list, which partners with both Cisco and Polycom. "But with Cisco and Spark and everything else, [Cisco] is driving toward that lower end as well."

The recently revamped Cisco Spark offers a complete end-to-end collaboration solution. New additions include hybrid services that connect on-premise capabilities to Spark in the cloud, a Collaboration as a Service platform that hosts and delivers Spark services, as well as a Spark for Developers community portal, where channel partners can build custom solutions for customers.

"On the Cisco side, it's not just pure telephony that they're doing at that lower end. They're doing it really from a cloud perceptive, but also having it attached to Spark so you're getting a lot more," said the Cisco Gold partner.

Mitel shares dropped from $7.88 per share before the announced acquisition, to $7.12 as of Tuesday at 11 a.m. Polycom's stock remains around the same at $12.03 per share since the news.