By Peter Wolchak

THE CEO OF MITEL, AND SO MANY OTHER COMPANIES, HAS A LOT TO SAY, BUT IT COMES DOWN TO THIS: TAKE A LOOK AT IP. NOW

If you are ever offered the chance to interview Terry Matthews, here are two pieces of advice. First, accept the offer. Chatting with Matthews is an adventure. He has a mercurial sense of topic, jumping from one idea or breakthrough to the next as he flips through an extensive bank of business and tech experiences.

Second, don’t begin your first question with “In researching your career and your company…” because he will quite rightly interrupt you and ask, “Which company?”

Now, you’ve done your homework and you know Matthews has founded many firms over the years, so you reply, “Good question; all of them but mostly Mitel.”

And he says: “So, you left out Newbridge Networks and March Networks and Newport Networks and Solace Systems and Sandvine and Convedia and NewHeights Software and Encore Networks and, well, a few more.”

You’ve just had an important aspect of this man handed to you, and that is: Matthews has helmed a hell of a lot of companies.

Indeed, he is arguably Canada’s premier tech entrepreneur. He is the chairman of Mitel Networks, which provides IP (Internet Protocol) solutions and offers voice, video and data convergence products.

Mitel has customers in more than 50 countries and employs about 2,000 people around the world. He is also CEO of March Networks, which provides IP multimedia applications. Prior to launching Mitel, Matthews was the CEO and chairman of Newbridge Networks, which was bought by France’s Alcatel in 2000.

And in addition to the company list above, he launched VC firm Celtic House and is a knight of the British Empire.

With all that going on, a talk with Matthews is a bumpy ride with a lot of stops and interesting scenery.

BACKBONE: It seems that IP, which is an old technology, has really exploded onto the scene in the last few years. Is it possible to look at IP and identify one overarching trend or development that is especially significant?

MATTHEWS: Yes, and that is, there is no one killer app. When you think about new networking paradigms, which is what broadband really brought, you realize two things. The first is the ubiquity of low-cost broadband, low-cost techniques that give you massive amounts of bandwidth. Then you add to that the ubiquitous nature of IP — an always on, always connected environment — and you have an incredible change in the nature of networks worldwide.

In fact, IP, and in particular broadband, creates a killer environment for solutions and applications. But a killer app is determined by the user: what is a killer app for one person may not work for another.

BACKBONE: Give me a practical example of that incredible change.

MATTHEWS: To start, you are not looking at the replacement of simple things. So, for example, if I said to a business person “I have really good news, I am speaking to you through a Voice over IP system,” well big deal, I can do that over a traditional phone network. Where’s the extra value?

Yes, IP is lower cost but I could do that same functionality before. On the other hand, if I can, with a click of a button, add an entire team [into a conversation] quickly and easily, that’s new. [Mitel offers a product] called Your Assistant, and YA is getting accolades from all over. So if I am on a call from my desk I can say “Hold on for a second, I’d like my workgroup to be in on this” and I can look up my workgroup contact list and drag and drop it in Your Assistant and all those people would be added immediately. And all the files and discussions associated with the call would pop up. So what are we talking about here?

We’re talking about secure instant messaging, knowledge management, and a simple drag-and-drop process that can bring in a whole group of people.

You couldn’t possibly do that with a [traditional] phone network. Now you have this option, because of broadband.

BACKBONE: What could IP functionality do for a specific vertical?

MATTHEWS: Consider what happened on 9/11. Trading in New York was shut down because two of the biggest buildings in the financial district were destroyed. So it was shut down until a new infrastructure could be built to take over. Now, it’s important to understand that the license to trade is with the trader, not the firm, so if you can take voice and data to a teleworker environment he or she can work from anywhere.

So instead of going to work, because the $15,000 trading turret (a technology infrastructure that supports trading activity) is there, we’re close to completing a light trading turret that would perform most of the functions of the main one but at a fraction of the cost. It can be teleworker, it can be in an office, anywhere you want.

So if a trader wants to work at home at midnight because there’s a big deal going on with the Hong Kong exchange, so be it, the person can work from home.

Every different vertical has its own set of killer apps, but the important thing is that IP broadband has created a killer environment for new apps.

Anything you can introduce that, one, speaks to revenue growth and, two, reduces costs and improves customer satisfaction — that’s all good. If you’re talking to a hospital and you come up with apps that save lives that is their most important thing. If you prove that, they’ll buy it.

But again, if you say “I’ve got Voice over IP therefore you must buy it because it’s new technology,” that’s bullshit.

BACKBONE: Are the possibilities inherent in IP well understood by the business community?

MATTHEWS: No. In fact, I would suggest that during 2004 the conditions that allow getting killer apps were there, but the confusion as to how to get there and what they could gain was not present. Companies want to see benefits in a substantive way.

What’s the bottom line on it? You need technology that delivers real benefit.

BACKBONE: Overall, then, how would you characterize the market for IP solutions?

MATTHEWS: In the last couple of years I’ve seen some pretty dramatic changes in IP.

For example, I bought Mitel back in 2000 and then I proceeded to increase our spending on IP solutions. I more-than doubled R&D. Now, I am pleased to say, I got the timing right. Let’s go back two years: IP sales were five, six or seven per cent of total sales at Mitel. Two years later that number is greatly in excess of 50 per cent. That tells you I’m doing the right thing, and it also means that if we hadn’t spent the money on IP solutions for enterprises the company would be in decline so rapidly that I would probably be selling it now. Instead, I am taking market share from everyone else.

So I feel pretty good about that. We are outperforming market growth.

At the same time, right now we are in an Aspirin market, instead of a vitamin market. We call it that because vitamins are for healthy purposes and Aspirin is a pain killer. People are only making changes when there is pain right now, but I think in 2005 people will begin to look at business more as a vitamin market.

BACKBONE: Given that, it’s interesting that the recent Industry Canada conference on SMBs and technology concluded the implementation rate for smaller businesses in Canada is really low. So they are not buying into the vision you outline.

MATTHEWS: That’s absolutely true. Small businesses…don’t have an IT department, so developing a channel to address them is difficult. One channel that can be effective is through the telephony side, because a small business will call up the incumbent phone company and say “I need a phone number,” so that would be the first line of attack. If there is a way to address small businesses and get them interested in hosting services it’s probably through the telephony providers.

The telephony service providers could be taking advantage of this small-enterprise interest in hosted services. [The next approach] is that there are some vendors, and I would place HP in the forefront, of which you can ask “Do these small companies use their products? Do they use HP printers?” I think they often do, and HP sells a lot of ink cartridges. So any company that can get down to the level of ink cartridges at $30 and printers for $200 or $300, and up to sophisticated multi-function machines for $500, there is an opportunity there for HP to do a much better job on the SMB market. And there are other obvious ones out there.

BACKBONE: It’s said that a number of years ago you decided to refocus Mitel on IP. Is that true, that it was a specific decision?

MATTHEWS: Starting in 2000 we were very heavily strategizing on the future, and when everyone else was cutting back we were investing. In fact if you take a look at the company’s product line, towards the end of the ’80s the company got out of the small end, got out of small PBXs, and I sold the company in 1985. At that time, markets around the world became very competitive and the company withdrew from many markets: China, Hong Kong, Australia, New Zealand, much of Europe, South America and so on. When I got back in, in 2000, we did two things: invested in growing the company around the planet: Hong Kong, Shanghai, China, Sydney, Melbourne, Paris, Amsterdam, Rome — so geographic expansion; and a massive amount of spending, in taking the product line through to the generation of IP equipment and with particular emphasis on the small enterprise. We were already in the large end. We also did a total overhaul of the desktop stuff. On top of that, we introduced the world’s first collaboration suite.

BACKBONE: Given that past success, what’s coming in the next few years?

MATTHEWS: Think about how long it took for cellphones to move from being cellphones only to cellphones with cameras.

That was about two years, and now it has become commonplace. Five years ago who would have said cellphones would have photography capability? And that is a great example of integrating things, because the truth is people like networking their photos — passing them to others — but who would have thought that? It’s a massive new business, and those people who make cellphones without a camera are having a tough damn time right now. And then there’s the whole growth of SMS text messaging: 138 billion SMS text messages were sent in 2003 in Europe alone. Good God! And five years ago that was almost nothing.

BACKBONE: So, what do you think is coming?

MATTHEWS: I think XML-routed public networks, content-aware networking where the information is available to those who subscribe, will be very significant.

Consider this: you’re going on a trip to Toronto and you live in Vancouver, so that’s a fair trip. So you go into a magazine store to look for something to read, say Canadian Geographic. That costs about $7. Now, what if I could alert you, with published information from anywhere on the planet, for $7 a month, about articles that interest you? I don’t know why but you really like smalllake ice fishing in Alaska. You don’t really care if the articles are from a travel correspondent in Sydney, Australia, or someone in South Africa writing an article on ice fishing. Well, the service could send you articles that relate to “ice fishing, Alaska, small lakes” or “fishing, winter, Alaska” and those would be things you’d like and you would pay for that.

If you specify a particular profile of interests, the network can become very knowledgeable about your hobbies, travel, entertainment and work, etc., and that would be valuable, because today the amount of information that is published worldwide is horrendous. One way to access that is for a Web site to bother you all the time, but 99 per cent of what’s on the Web site does not interest you. Your interests are narrowly defined, and if we can capture that information we can then automatically send you that information and you’d pay for that. You demonstrated that by going into a store and buying a magazine on Canadian geography.

BACKBONE: Let’s switch lanes a bit, and move to a more personal topic. When you look at the success you’ve had as an entrepreneur in Canada, is there a lesson to be drawn about Canadian entrepreneurship or business?

MATTHEWS: My experience has given me the confidence to do more. First of all, Canadian engineering is very good. I have a lot of experience in Europe, in the U.S. and in Canada, and Canadian engineers are first class.

Second, there is a chance service providers in Canada could do some worldwide things, because in Canada we’ve developed many strong government and corporate initiatives Take Mitel. It’s 30-odd years old and it’s been very innovative. It was the first company to develop a softwaredriven PABX (private automatic branch exchange) and in five years, 1977 to 1982, Mitel captured 20 per cent of the PABX industry worldwide. Would that be considered a big accomplishment?

Then look at Newbridge. It captured a huge portion of the ATM and frame-relay networking industry worldwide and then got into very big networking switches. The company started from scratch in 1986 and 13 years later the company’s final quarter (before its purchase by Alcatel) was $720 million, so that’s a $3 billion enterprise.

The point here is that sometimes we underestimate the ability of Canadian companies, engineers and marketing people to be world class.

BACKBONE: In fact, the standard wisdom is that Canadians are more risk-averse than Americans and therefore less aggressive.

MATTHEWS: Okay, so I suggest you write some articles to say that’s bullshit.

Canadians need to just get on with it.

BACKBONE: That’s your advice then: just get on with it?

MATTHEWS: Get on with it. The biggest market in the world has a big open border with Canada — take full advantage. That is our birthright: to take advantage of that giant American market.