Guest blog by Zeus Kerravala, Founder and Principal Analyst of ZK Research.
Mitel‘s emergence from financial restructuring is well-timed with market trends.
This week, Mitel announced that the financial restructuring has been completed. Through the process, the company has reduced its debt by $1.15 billion, lowered annual interest payments by $135 million and raised $125 million in new funding to support its go-forward operations. Through all the acquisitions and other moves Mitel had made over the years, the company had become saddled with debt, which limited the strategic initiatives the company could embark on.
Revenue and cash flow have been trending upwards, but the burden of paying off the previous loans was acting as an anchor. The improved balance sheet gives Mitel the necessary flexibility to take advantage of current market trends.
The execution of the financial plan is well-timed. Over the past decade, the world has gone gaga over cloud communications, but the definition of cloud is changing. Historically, “cloud” meant “SaaS,” which means multi-tenant solutions. While this accelerated digital transformation in communications for many organizations, especially during the pandemic, there has been a pivot back to hybrid and private clouds. This sentiment has been echoed by Nvidia, AWS, Cisco, HPE, IBM and other large IT vendors.
There have been few communications leaders discussing this trend, but that should not be a surprise given this sector of IT has always been a late adopter of modern tech trends. The communications industry was late to move to IP, was skeptical of virtualizations, and many telecom professionals once believed voice could never be delivered from the cloud.
Similarly, despite the fact that general IT workloads have seen a pivot back to private and hybrid, UC and CC have been slow to embrace the trend. This speaks to the critical nature of communications and call centers, where any disruption is bad for business. However, the trend is clear, and communications is on the precipice of this shift.
This change is driven by the intersection of emerging trends like AI, data sovereignty, mounting regulatory pressures, and the imperative for more operational resilience, survivability, and control. While public clouds initially took center stage with its agility, elasticity, and low capital costs, organizations are now realizing that not every workload is suitable for these environments, especially given new technologies, geopolitical, and compliance pressures.
AI is leading this change. As businesses deploy AI models for driving automation, personalization, and decision-making, they are faced with issues of data gravity – the idea that data is simpler to compute near to their storage locations. AI workloads of high density tend to require a great amount of compute capacity and rapid access to huge data sets, so on-prem or edge-based private clouds become more advantageous than centralized public clouds.
Also, organizations are more focused on data privacy and governance since they are training models using sensitive or proprietary data. Private and hybrid cloud gives them the ability to offshore data processing, reduce latency, and have control over their most valuable digital assets.
With communications, this is critical as employee and customer data is scattered everywhere. Trying to centralize all data may seem like a good idea, but it’s impractical. Shifting to a hybrid cloud model lets customers leave data where it is and apply AI at the source.
Directly connected to this is a growing emphasis on data sovereignty. Governments around the world are enacting stricter data residency legislation that requires citizen or operational data to remain within national borders. The European Union’s GDPR, India’s DPDP Act, and China’s CSL are just a few of the regulatory frameworks that are redefining the management of data. The regulations have the tendency to make it too complicated—or even illegal—to have businesses based on global public cloud providers where data resides in various regions across the globe.
Hybrid and private cloud models offer organizations an opportunity to achieve such requirements while still enjoying the benefits of the cloud and having localized infrastructure or region-specific colocation facilities.
Cloud communications deals with a tremendous amount of sensitive data, particularly in verticals like healthcare, public sector & defense, banking and financial services, etc. In many regions, the easiest way to deal with local regulatory issues is to keep the systems local.
Security and compliance are also key drivers of this shift. Most companies operate in highly regulated sectors with high demands for auditability, deterministic control, and risk mitigation. Hybrid and private clouds give more control over security policies, access controls, and network architecture, which are difficult to replicate in traditional pure cloud environments.
Also driving companies to diversify their infrastructure are cost predictability and vendor lock-in concerns. While public cloud costs can quickly balloon with increased usage, private and hybrid clouds offer more consistent economics for workloads that do not fluctuate.
Generally, the cloud ecosystem is evolving. Organizations these days have realized that one size fits all cloud is no longer adequate to address their evolving technical, legal, and business demands. The re-emergence of hybrid and private clouds reflects a more advanced approach—a strategy that combines innovation with control, and worldwide reach with local responsibility.
As AI, data sovereignty, and regulatory complexity become even more demanding, hybrid cloud will become the go-to architecture for enterprise IT, which includes the late adopting communications industry.
Since Tarun Loomba has taken over as CEO, Mitel has been unwavering regarding this strategy. This is critical for Mitel to be successful in its post-restructuring era. Simply removing debt with a flawed strategy will lead the company back to another untenable financial situation. This was the case with the Jim Chirico and Alan Masarek Avaya financial restructurings.
The difference with Mitel’s execution is that the company put the strategy in place first and then went through the restructuring process. Mitel does best by simplifying the product portfolio and focusing on cloud and on-premises deployments. Almost all other vendors have shifted 100 percent to SaaS, leaving the market wide open for Mitel.
I recently talked to Loomba, and he was very upbeat about where the company is. He told me, “Enterprises face a level of complexity with their communications, particularly in critical industries where diversity of solutions, no downtime, and the highest levels of security are the norm. Mitel has decades of experience across clouds of all types – public, private, hybrid, and on-prem, and we help customers regardless of what their cloud journey is.”
The messy work is done, and now Mitel can focus on driving more innovation and helping its customers evolve their business in the AI era.
