Not to take away from challenges of the legacy telecommunications industry right now, but this article slides in the private equity LBO part of Avaya's story at the very end - and then only hints at what happened here.
I hope the pensioners and benefits obligations get paid the money they are owed ASAP, because this is a classic story of private equity (Silver and TPG) financially engineering a cash-siphon from a dying dinosaur and then "phoning it in" when it came to the manage out/re-price of new risk.
I don't have a problem with mega private equity and I can see some kool-aid drinkers saying "any acquisition made in October 2007 (the technical peak of the pre-crisis market) was going to have a tough time working out as played". But this was a deal designed to fail from the start.
Basically the private equity stunt here was: find a company that has $100, take $99 of it, use the company's last $1 to buy a lottery ticket, try to convince other investors that $1 ticket is a winner. They failed huge here.
Yeah, I see maneuvers of this sort as top management's equivalent to grabbing computer monitors, chairs, and coffee machines on their way out the door. The "PE turnaround" story provides a fig leaf to cover the violation of fiduciary duty, letting management + PE firm get away scot-free with stealing the liquidation money.
Admittedly this opinion of mine is based on propaganda from the 2008 election cycle . If it's fundamentally flawed, I'd appreciate if someone would take the time to CMV.
I agree, looking at this statement it sounds like this is a result of private equity loading the company up with debt. It sounds like problems are in the debt servicing post buyout.
>"The Santa Clara, California-based company has been burdened by debt stemming from an $8.2 billion buyout in 2007 by private equity firms Silver Lake Partners LP and TPG Capital LP, with $600 million coming due in October. Interest expense of more than $400 million a year has been pushing Avaya into losses."
"But this was a deal designed to fail from the start."
Can you elaborate on this further? I just made a comment earlier about how Avaya ended up in this situation and I have had a feeling, based on how the last few years have played out, that you might be right: I just dont understand how the owners could have run the company the way they did and make out with a profit.
They thought they were going to be able to do the quick cost cut and then buy another company, in this case Nortel, and then flip it is an IPO. They actually made a mess of the company, then 2008 happened and then made a bigger mess with the Nortel acquisition (strategically made no sense, paid way too much and then botched the integration). The part of the Nortel business that Avaya bought was actually profitable at the time.
Epic cluster.
What would you like to know? I read your comment and I think you pretty much get the gist of it, but if you have q's about how private equity (PE) works in this situation I'm happy to try to answer.
As for this deal. First it was 10+ years so feel free to call bullshit on my memory but it felt like amateur hours as if SL/TPG let their new MBA hires run it or people just screwed up when structuring the deal and unsurprisingly it's been a disaster ever since. Some examples of what I mean:
TL;DR buying a knowingly bad business, buying it at auction for a 28% premium, overloading it with clearly too much debt (even by risk-lovers standards), showing little commitment as owners to planning/doing the hands on operations work needed to fix/change/revive a mature obsolescing tech company, nor put in a management team that seemed serious about it either.
It appears SL/TPG saw the prospects for Avaya were weak and did the deal anyway[1]. In case you don't have access to WSJ, article talks about TPG viewing Avaya as a "buggy-whip business" at risk of being outmoded.
That's not so bad on its own. Obsolescing/dying "buggy-whip businesses" are just a reality of the business world. Such companies can still have value and potential. But what's odd is SL/TPG not only stayed in the deal but they bought in at a premium on auction. Meaning they had to fight against other buyers to win the deal and then they paid a premium of ~28% for it. OK guys...Auctions are a joke of a way to buy any business to begin with and such auction deals deserve the little to no respect they get in the PE industry.
(side note: This inevitable obsolescence in a business model is especially true in the tech space lately where the moment you launch a startup or introduce a new product the process of it becoming outdated has already started. All tech companies, big or bedroom, worry about keeping up with the next tech wave and there is no formula to avoid being a one-hit wonder. Of course some companies are able to hang on longer and stay big longer than others (ie "the by luck or by fuck clause" also known as the SV/DC two-step), but anyone who thinks the big FANGs of today will for sure be around in 10 years should read more tech industry history. Every tech business is dying just some faster than others).
As for the Avaya debt. LBO's need debt and debt is not necessarily bad when it comes to buying companies. The analogy for LBO debt is often that it's like buying a house. I guess in the Avaya case it's maybe like a house in Detroit. But if you have a $1MM and want to buy a house it may be better not to use the whole $1Million on the house. Put down $100k and take a $900k mortgage from a bank. Put your other $900k into other investments. At the end of it one should hopefully be better off vs. putting all your eggs in one basket. So while debt to buy companies can be a good idea in theory it doesn't always work out due to just chance and also because the investment industry has a small but news-worthy population of criminals and fucking idiots.
In the case of Avaya it was clear as day they used too much debt. Everyone could see it and there were journalists/articles where the high debt issue was brought up with Avaya management. I don't know if it was negligence or malice or what.
If things don't go well in an LBO and the company has to file for bankruptcy the bondholders lose. But that's not so bad, the bondholders should have known the risks of the investment going in and they were paid for that risk. Don't cry for them.
This reply has gotten long. I will add Kevin Kennedy has not done a good job as CEO...Avaya is spending money on soccer stadium names and has fake filed for IPO how many times then changed its mind? Also what really happened with Louis D'Ambrosio? He leaves suddenly due to medical reasons then went to be CEO of Sears a few years later. SL/TPG put Charles Giancarlo in as a replacement who lasted a year with them?
Lastly, Private Equity and LBOs have the potential to be good for companies and investors and employees. Businesses die and if someone sees a chance to make some money trying to revive it or wants to get paid to dismantle it, that's ok. But this should be done primum non nocere from day 1. This includes accurately telling employees and future investors of the risks of doing the turnaround and it should not be done with outstanding liabilities owned to employee pension plans. Frankly, in my personal opinion Avaya has been run so poorly over the last few years, with risks that did not make sense, that a crime with lapse of fiduciary duty may have occurred.
Great, thanks for your response. You sounds like someone who is on au fait with these kinds of deals so I'll ask you your opinion on who were the winners and losers here.
So, presumably TPG lose what ever the initially put in now that it has hit the wall. Does that mean that they will have lost money over the course of the investment or would they have found a way to slowly extract money from the quite reasonable revenue that Avaya was generating over the last 10 years? Their only regret being that they werent able to offload the company before it hit the wall.
With the mortgage/LBO analogy: when the bank repossess the home it is theirs to manage. By what process does the venture guys give up ownership and wash their hands of the day to day operations?
Since this was a leveraged buyout presumably the big loser here would be who ever holds the bonds that were created to fund the buyout and whatever else debt the company holds. Is there anyway to know who they are and why they thought it was a good idea to put their money into this? Are likely to end up owners of this company after the bankruptcy is resolved?
I guess the employees will take a large hit here, layoffs all round and whatnot.
The leadership members that were put in to run the place: do they typically take any kind of a hit in scenarios like this? It seems common knowledge that KK was getting paid serious compensation for his time but it looks like the only downside for him is that he didnt get the big bonus for selling off the company. Can we expect a clearout at the top or is this up to the new owners who result from the chapter 11 process.
Honestly, I don't know enough details and the Chapter 11 process needs to play out still, so I think it's to soon to really say who were the winners and losers here. Also it depends how you want to define winners and losers. Well the lawyers are the winners for sure, but as for other parties it is tbd.
As for info on where TPG and your debt holders stand, along with other details on what the hell is going on, it should be mostly publicly available. SEC's Edgar is where I would start to look and a multi-page google search session should find other stray legal documents.
Also here is a Bloomberg article from last year when the shit hit the fan while eating spicy food from a dirty foodtruck, the article has some names of who owned the debt and who represents them and what your bonds were trading at (even back then it was already 28 cents on the dollar, Oy)
I don't know nor can I predict if there will be large layoffs. You work there, so hopefully you know.
It should not "seem like common knowledge" how much KK is getting paid, it should be common knowledge, this is publicly available information. Click on that Edgar link above, the info is in there. Look at the 10-K forms the company filed they disclose executive compensation.
Other questions like what will happen to leadership or how will ownership of the company change or what assets may need to be sold, this is all part of the Chapter 11 process.
Unfortunately, and despite popular opinion, people on Wall St cannot predict the future ;). I don't know why CNBC and WSJ keep asking investors and economists what they think will happen, these shmuks have no fucking clue. So my apologies, but I just don't know how this will play out. But Chapter 11 is quite a public process so you can follow it as it happens.
One more thing on the winners and losers. Sometimes a company can go down and there are no big winners or big losers. Not by how I would define a loser here. I am sure TPG and Avaya bondholders wished things had turned out better on this investment. But they made an active investment decision, in a risky company, as part of a diversified portfolio of multiple bets similar (well hopefully). The portfolio overall also hopefully isn't losing money even when one of the deals turns out to be a dud. Companies can go down even when giving a 100% honest effort to improve it. Look at VCs and startups, some/most startups in the VC's portfolio inevitably fail, are these companies and their VCs losers? If people are fully informed on the risk and rewards, and nothing was taken away, then the founders, employees and investors knew they were taking a risk when they signed up.
My main concern when I read news stories like this is if people were lied to, or misled or company directors & officers did not act in good faith while making decisions when running the company. Being dumb still not a crime on its own. But if a company's D&O put their employees pensions on the line while enriching themselves, or if management mislead employees and small investors about the health of the company/their efforts to fix the company's problems while really planning their own exit behind the scenes - that's fucking disgusting and it may be a crime (and if it was a crime send their asses to jail plus a lawsuit to clawback their BS gains).
I don't know how this will play out but if I worked there I would for sure be looking for another job asap as part of the uncertainty of who, what, where over the next few weeks in Ch.11. Good luck.
I have been working at avaya for the last couple years and I have been scratching my head trying to understand how this company works and how it got into this situation. On one hand its a company thats hasn't made a profit in 10 years but on the other it takes in a billion every quarter. When you look at the numbers it turns out it is paying tens of millions to service the interest on its massive debt... it would be quite profitable if it was not for this. So where did the debt come from? Most of it seems to have come from the leveraged buyout it underwent 10 years back. So now they file for chapter 11 bankruptcy but who is getting burned here? Anyone who bought an avaya bond will lose out but what about the private equity company that owns the place? The way the company was allowed to grow its debt seems like they just didnt care as if it wasnt going to hurt them when bankruptcy finally beckons.
By definition, the more leveraged the company, the more of it is owned by creditors. So if the company later does go belly-up, it is the creditors (banks, bondholders, etc.) who lose most on a percentage basis.
This simplistic analysis however ignores that before the buyout the company might have been a prosperous self-sustaining entity fully capitalized by common stock with little debt. That common stock, made into a small percentage of the capital structure by the buyout, is often wiped out too in the event of bankruptcy - indeed it is usually at the bottom of the totem pole in that capital structure. So although they may no longer be majority owners, bankruptcy is typically an unhappy event for long-time stockholders of the company such as founders, employees holding company stock in their 401ks, etc.
Perversely this is the kind of company PE outfits typically go after - in their worldview it is a waste of leveraging potential not to apply debt to such a company. I recommend reading "Barbarians at the Gate" if you are interested in this topic.
Thanks for your insight, I will check out your recommendation. As is the case with most things in finance, I'm sure if I scratch the surface there is a fairly straight forward explanation as to why things worked out the way they did. It is amazing how you can work at a place where the owners interests and the leadership goals might not be aligned to what you thought they were. There was a strange situation some months back where by the board filed a notice that if the company was bought they would each get juicy bonuses and even bigger ones if they were fired by the new owners. That was an interesting one.
As striking as it is for a company to take in a billion every quarter and still fail to make a profit, it is all to common in the telco space. I know from experience at one of the big 4 wireless carriers in the US. The inefficient mismanagement and spending decisions, specifically related to operations were astounding.
I started a company (shameless plug: fifthsignal.com) that makes software to fix a lot of the inefficiencies we saw. One of our biggest concerns was whether or not other carriers operated as poorly as what we had experienced. After talking with several carriers outside of the US, it would seem that most are actually worse off.
I believe someone in this thread made a comment towards the "legacy" telco space. Based on my experience, I would say it's a "dinosaur" industry that has seen very little delivered innovation in recent times.
*Most of my experience relates to operations/OSS solutions, with very little insight into telco BSS space.
Hey, plenty of experience in the gsm telecoms space. Currently doing some consulting with telecom co's shoot me a mail username at ZyeLabs.net. see how we can colab. Could refer you to some guys. One of our clients wanted to do a POC to pull logs from the RAN side into Hadoop but the vendors like Huawei and ZTE keep their kit locked down. Even refusing to supply spec on file formats.
But that's not the problem here, as everyone is explaining. The problem is that they are wasting all their money paying massive interest on massive debt. One of those times that a business gets caught up in tie same cycle as is usually reserved for people. It's quite treasonous and the first things to get hacked are decents who are just trying to get by.
Based on what you described (that they have operating earnings coming in the door) this sounds like a good reorg case. Whatever they did to take on so much debt the debt service cost is no longer sustainable by the business. In this case when they require new funding (to pay off maturing debt or just to keep the business operating because suppliers/banks etc are no longer willing to extend credit) the new capital providers (in this case affiliates of Citi) would typically demand that they file for bankruptcy first, because the new lenders don't want to comingle their capital with the existing lenders. Funding provided post filing has priority claims on the assets of the company. During the bankruptcy the company negotiates with existing creditors to lower the debt service cost temporarily or permanently. If there is impairment to existing claims the equity ownership is essentially wiped out and new management is typically brought in by the creditors. Creditors may convert all or part of their claims into equity holdings in the new entity exiting bankruptcy. All of these are designed to orderly resolve claims and give the company a new chance, except the process can be drawn out if the parties involved have different ideas on how best to proceed. The best cases are when the creditors can agree with the management on a plan of resolution pre-filing and the bankruptcy court is used to bring certainty to the plan, in which case the process is often quite short. LBO debt structure is often designed to ease restructuring (with subordination) and holders are likely more concentrated and familiar with the bankruptcy process. If only bondholders are impaired this could be over relatively quickly and the pension claims will not be harmed (at least on paper). The problem is that the bondholders could be too rosy about the business prospect and not willing to impair their own claims enough for the company to be truly financially sound and in a few years the company may be back to the same process a second time.
This is classic Wall Street private equity behavior. Use borrowed money to buy the company, loot the place, and flip it. It's pure parasitic behavior but not illegal.
I would advise anyone working at a company acquired by private equity to bail out ASAP. It is just a matter of time before you get screwed. Especially don't get left with a bunch of company stock.
I do wonder why creditors keep funding these PE deals and why anyone participates in their share offerings. You're asking to get taken.
Here is where I am struggling with... did the venture guys actually make money in this case or did they make such a balls of it that they actually lost significant amounts of their own money? Would they have 'Looted' the place by paying out bonus to themselves as employees, could they have done this to such an extent that over time it covered the initial capital they put in to take Avaya over?
Off-topic tale: This brings back the memory of my first serious security job, 14 years ago or so. I had to pen test a big corporate-like network from the inside so I was left with my laptop in a cubicle and the mission to own something. I was young, inexperienced and a bit scared by the size of the network. After some minutes I had a general map of the network, there were some separated LANs and in the middle of them all it was this Avaya Cajun managed thing. I ran some google queries and the second or third result showed up a CVE, the Avaya firmware had a hidden admin account. Total time used, 10-15 mins.
I did not have to go any further, owning the Avaya was game over and got some pats on the back from my employer and the clients. I had prepared a quite extensive plan of action, been my first gig I had to show. The laptop was loaded of tools, even some "cool" exploits but at the end it all came down to a few nmap scans and a google query. I felt dissapointed. Also, after the pen test I spent some (very) boring weeks documenting, inventorying, and documenting again. It made me reconsider how deep I wanted to dive into security audits.
A friend of mine closed his company in 2013 and had a full avaya system with 40 phones and latest software that he could not even give away. Eventually some kids from a local hackerspace came and hauled away the whole lot. They were after the headsets and lcds.
I think this is pretty standard in the pbx business. The manufacturers don't give out the complete documentation for the system, so it is useless without paying money to your local dealer. Your local dealer doesn't want to help you with a used system, he'd prefer to sell you a brand new one. Source: I work for a dealer.
I worked for a dealer. The configuration utility for Cisco PBXes (piece of crap, by the way) can only be downloaded by certified Cisco partners. Or BitTorrent.
Hell, even the firmware + config can only be downloaded that way. This means if you got used phones that were configured for the proprietary SCCP, you wouldn't be able to reconfigure them as SIP phones without paying the big bucks. Yes, I know about Asterisk's chan_sccp.
They really went too hard with the whole proprietary software thing (but who am I kidding, telecom loves proprietary). Even though I know very little about Avaya, my assumption every time I have tried to look them up is that they are locked down and difficult to integrate with.
If I'm wrong, they sure as hell spent a lot of time leading me to believe I'm right.
"my assumption every time I have tried to look them up is that they are locked down and difficult to integrate with."
Yep exactly this. We are working on a project where we have to integrate with Avaya. It is a nightmare and ancient technology. Why would a company spend tons of $ when you have just as good software in open source world (free switch)
You are correct. It's been a closed system in a space that was opened by OSS like Asterisk in the early 2000s. Their solutions cost 5-10x's similar ones available from competitors. Add in their late embrace of cloud and it's not hard to see why they went bankrupt.
Can confirm that integrations (and a lot of system interactions) are needlessly painful. Telephone systems are generally rough around the edges to begin with, but Avaya is a prize winner.
A bit off-topic, but a call-out to those tech consultants who often work remotely (using VOIP to interface with POTS):
At the previous tech company I worked at, we used Avaya VOIP phones (5000+ employees). The phones could be used at home (with a remote access point - RAP - plugged into your router). One thing that always impressed me was just how clear, crisp, and low-latency the audio was for VOIP. I'd pick up the handset and the dial-tone was immediately there; while on conference calls, I could easily interject comments (whereas with Skype, there is always an annoying delay). While working at this company, I would literally bring this big ol' corporate deskphone with my while traveling (e.g. south america, London, etc), and it was great having a perfect call connection anywhere there is decent internet.
My question is - for those folks who work remotely 100% (or often): Have you found a VOIP phone solution that really works well for you? I bough an Ooma handset, and I'm sorry to say that the audio is still clouded, muffled, and has latency. Plus, the handset (the home/residential one) just feels... flaky. Without having much experience with other VOIP phone systems, I'm really looking for a solid corporate desk phone (handset, but also very clear remote headset) - it's got to be as good as an in-office phone, interface with POTS, and also be portable for travel. I do a lot of consulting, and am on phone calls sometimes 4-5+ hours a day, so it'd be great to have a comfortable powerful solution that can handle this.
Would love to hear anyone's thoughts and experience on this. My Ooma purchase was an bit of a costly experiment...
I'm surprised how much, as consumers, people will put up with in terms of bad audio. I think cell phones really helped lower the bar when the connections were bad but the mobility was unrivaled. I used to hate calling someone's cell phone because the land-line was generally crystal clear and responsive.
Granted, things have improved a lot over the last 10 years, both in cell phones and internet calling. However, video conferencing still seems pretty obsessed with figuring out a way to get high definition video and both audio quality (from the connection and the equipment) and latency haven't improved significantly for major video conferencing solutions.
Mobile audio is awful because we are oversubscribed. My first mobile was a CDMA PCS phone. My first call on it was for a date. My date assumed I was calling from home on a land line. I was at her front door. The audio was so clean it was indistinguishable from a landline.
Later on, as CDMA phones grew in popularity, the multiplexing grew and the bandwidth shrank. Also codecs got more efficient by flattening the audio. All the atmosphere is stripped from the audio and voice calls got very sterile.
I use FT Audio and whatsapp as well. FT calls are answerable right away while Whatsapp calls have a whole process: swipe, unlock, find app, open app. By the time I get in my Whatsapp caller has given up. 10 seconds later they'll make a normal cellphone call.
> I'm surprised how much, as consumers, people will put up with in terms of bad audio. I think cell phones really helped lower the bar when the connections were bad but the mobility was unrivaled. I used to hate calling someone's cell phone because the land-line was generally crystal clear and responsive.
VoLTE has been rolling out (slowly) over the past few years, but has hit a human-based stumbling block. People now expect background noise on phone calls, and may mistake its absence for a signal that the call has been dropped.
>> it was great having a perfect call connection anywhere there is decent internet.
Thats the catch. The internet service has to be good enough for VoIP. Many times, having the right router is key.
>> I'd pick up the handset and the dial-tone was immediately there;
As long as the handset thinks its registered, dial tone will be immediate.
As far as the Ooma experience goes, if you can change the codecs for your device to use something like G722 rather than the normal PCMU/PCMA or GSM, call quality should be good. What handset did you get for your Ooma service ?
Thanks for replying! When I had the Avaya phone, in most all locations & conditions, if there was decent (e.g. a non-tech person's home in latin america, an apartment in London, a residential cable modem in turkey) - the call was crystal clear. Meanwhile, Skype, Google Voice, Viber, and even WebEx sounded cloudy. I always wanted to know what the "secret sauce" was that allowed this device (or the company-hosted server behind it) to have this quality.
And I bought the headset (which connects to the base station as another phone, rather TO the phone. The process to simply dial a number and use the headset is comically complicated to "join" the calls...)
If you have any specific advice for this setup, I'd be appreciative. Likewise, if you have other recommendations for solutions, I'm all ears. Thanks again!
Try a Polycom. You can usually get good deals on used phones.
Ultimately, the quality mostly depends on who is running the voip system. I have a fancy pants Cisco phone on my desk with a premium headset that combined costs as much as a nice laptop. But it sounds like a turd, because our network folks want to save precious bandwidth. The phone itself can do HD audio and all sorts of fancy things.
The headset is easy -- just spend more. Find a Jabra or Polycom that integrates with your phones hook and volume controls. Good ones are $200. The one I have has ridiculously long range and good sound.
That is the basis of the private equity industry. Sometimes there's more cashflow than they expected so the firm doesn't go belly-up before they can peddle it, but that's not because PE dudes are any good at running a business. It's just as common to get less cashflow than they expected, and have the whole thing collapse without paying them.
In a previous life I got a close-up view of Carlyle attempting this with a former Verizon business, only to discover that Verizon can put short pants on crooked business execs. That office tower was stacked to the ceilings with deadwood. Equal parts fascinating and horrifying.
It means that compared to Verizon crooked execs, Carlyle crooked execs were like children, who were new to the game of being crooked executives. (Traditionally it was children who wore short pants.)
So does this mean our company will stop forcing this Avaya plugin into all the browsers? Just hopeful thinking. It has caused many hours of troubleshooting as it injects it's code into every page.
I can't understand till today how they (and others) are capably to sell PBX hardware when there are free and low cost software alternatives which runs on common x86 hardware.
FreePBX for Linux (https://www.freepbx.org/) or MizuSwitch for Windows (https://www.mizu-voip.com/Software/VoIPServer/FreeSoftswitch...) are very good free alternatives which can be managed also by non-technical people with zero telecom experience. And there are a good support and a lot of modules for both which can be purchased on low cost, not comparable to Avaya pricing.
First, Avaya does run on common x86 servers as well as virtualized and has for many years. Linux and Xen if fact.
Many implementations of freeswitch/asterisk fell apart as they simply don't scale to thousands of users. Yes, I know about Kamailio. Scale doesn't just mean have 50,000 endpoints register to the system and handle the busy hour call volume. It needs to be secure (Avaya encrypts H.323 and SIP very easily (Cisco actually doesn't do well here)). Which means you need to be able manage certs for each gateway, phone and application server. It's needs to be manageable with have full access control and it needs to provide the tools support the environment. A rich ecosystem of proven integrations help here too.
Further, contact centre, when you have 1000 agents, or 25000, the cost of each of those agents doing nothing on a revenue contact centre because of a system crash is wildly expensive. Further, in the event of a major failure of a DC, many such customers also require triple redundancy with each system being able to failover with limited or no impact to the business.
Federal governments require certifications that are very arduous and require substantial techical resources and capital.
I could go on, but this mostly covers Enterprise and federal government.
Now for small businesses it's a completely different issue. FreePBX is ridiculously difficult to configure. Very few people have the skills to understand how to develop and build a dial plan, how to integrate with SIP Trunks from a carrier, and even if they manage that the gateways that are from these other companies have a completely different interface and a completely different skillset. It's simply too hard especially when I can go and pay a small amount per month and either get some kind of a cloud service. Probably the best example for a commercial/open source offer is Digium. But they haven't gained substantial market share compared to the likes of Avaya IP office, Shoretel, Cisco, etc. However, if you do the math, these small systems are actually cheaper than cloud provider because you can run them with very low recurring expense.
In my opinion, Avaya doesn't have a long road ahead. But it had nothing to do with their technology, nothing to do with their business practices, it was entirely the destruction of a business by a private equity firm who thought they could make a quick buck but completely screwed up.
This is true, but new competitors also haven't been around as long as Avaya. Before Asterisk and other software hit the market, there were four players - Avaya, Cisco, Mitel and Nortel. Now there are dozens of large players and hundreds of medium sized ones. These companies are gaining market share in the enterprise - just checkout the exhibitor list for enterprise connect 17.
In addition, there are random local dudes who can set up an office Asterisk system based on commodity hardware for like $2000, and whom you can pay another $200 every couple of years when something needs to be changed. An Avaya system can't get close to that.
I've torn out several Asterisk systems because that random local dude grew tired of dealing with Asterisk. Toshiba, which is a competitor of Avaya, does get close to that.
I'm absolutely positive Asterisk is better than Toshiba in that regard. I've invented some absolutely hideous hacks to get Toshiba systems do complicated call flow. But for a minuscule office with less than 8 phones, say a chiropractor or hand made guitar manufacturer, Toshiba does the basics, does it well, and is much easier to install. The systems don't do much, but they do it well. The pbx can hang in a damp and dirty location for years and still work. Internet service here is too unreliable to have a hosting solution or sip trunks, unless you want to pay AT&T thousands a month. The wiring can be 50 year old 25 pair, and the phones work fine. Businesses don't want to switch to ip phones since they don't have the cabling infrastructure for it.
Asterisk is completely scriptable. Somehow I doubt that Toshiba system can do what we've needed done with respect to different stations ringing at different times of day, complicated dialing permissions, logging Charter Business outages, recording customer service interactions, etc. Each of those things required a small amount of labor, and no equipment purchases.
Of course our dude might leave the industry someday. Then we might have to hire a different dude.
It's true that open source can replace some PBX functionality.
There are though, operations that require scale or functionality that either doesn't exist, or isn't quite bulletproof in the open source world.
SS7 connectivity, geographically spread call centers, priority queuing based on multiple concurrent data sources, drag-drop complex IVR software, natural language parsing, natural language generation, contextual screen pops with hooks to caller information, and so forth.
Some of those are available in open source, yes. Not necessarily proven at scale, easy to integrate, etc.
Of course, Avaya filing for bankruptcy hints that there aren't many customers that need this sort of stuff anymore. Either the support function is shifting to chat/email, or they are using SaaS vs their own equipment.
Except SS7 you can software based solutions for all the rest costing much less then hardware based solutions from Avaya, Cisco and similar mammoth companies.
Often people think that these hardware based products offers better quality but I often seen the opposite.
Or use a hosted QueueMetrics cluster with Asterisk and a little bit of scripting to connect the dots. It costs a small fraction and gets you most of the functionality.
> are very good free alternatives which can be managed also by non-technical people with zero telecom experience.
Are you kidding me?
I run my own PBX (would count as a SMB from a user/call count perspective). It doesn't run on any open source software, because all FOSS PBXes I looked at where ridiculously hard to configure. FreePBX is a great example there.
Anyhow, I mainly looked into AskoziaPBX and Vodia after that.
Askozia terminated their "diet" version and costs 250+ € (only one variant is offered).
Vodia has a free version (5 extensions, which is exactly enough), and has a more granular licensing scheme. I didn't fully setup Askozia testing, but it looked quite nice. Vodia was also reasonably easy to configure (about 1-2 days initial setup and after a couple weeks I got all the kinks fixed).
I used to be the lead developer on an IVR/PBX SaaS solution. It hasn't been necessary to have dedicated hardware for years (ever since out-of-band DTMF has been a thing). The only reason that companies buy it is because they're getting conned into it.
We had a server through which the conversation (SIP, converted from landlines) went, and enabled the agent to interact with the call through either a web page, or hitting keys on their phone. Transfers, blind or not, holds, recordings, assistance, we could handle all of it. To dumb phones. Literally things that weren't able to display the time of day.
Mobile is doing diddly squat, frankly. Same as softphones. The voice quality over wi-fi is terrible, and what's the point of using a mobile device if it needs to be plugged in anyway. Softphones never took off because call centres couldn't reuse their headphone equipment, and having a headphone's "pick up" button work on a softphone was impossible, at scale. It also meant that actually interacting with the call was tricky (change focus of the window to find the numpad, then either click on digits, or type on the keyboard).
One major game changer, however, seems to be WebRTC. A lot of companies are investing big on it (see Dixa and COLT for example).
I really think this is a generational problem. Callcentres of old want the highly integrated hardware. Train your people once, and then they can become robots. New, modern places want the ability to switch providers. They want their agents to be close to the customer, and even closer to the tracking/reporting software stack, without going through 10 layers of proprietary integration.
WebRTC also means that you can simply talk to the person on your website, while you see what they see, and can walk them through whatever they need.
Some are. The problem is that what is WebRTC depends on Google's whims of the day - so your browsers update and all of a sudden your agents can't work anymore.
SipXecs is really great. Nortel actually bought PingTel and called it SCS (terrible name). For a moment it looked like there was some hope that the industry was going to see the light, but after the acquisition Avaya promptly killed it off.
Fortunately, because it was open source, we now have SipXecs. Last I worked with it (5 years ago), I'd be comfortable implementing it for a client with less than 1500 users and no complex contact centre. I imagine it is much more capable now.
I still recommend it.
I was excited to find a VOIP service for windows -- but Mizu is not free for Commercial use. Their basic price is competitive with a few other solutions at that scale, though.
I have experience with Asterisk and the Mizu VoIP softswitch only.
Asterisk is quite limited on capacity, but that mizu server can handle 10000 simultaneous calls on a cheap Xeon server (full B2B calls with billing and RTP proxy and all the PBX stuff such as IVR, voicemail, conference).
This capacity is enough for a whole smaller country and these kind of software solutions can be easily scaled.
Of course, you can buy the same capacity 100x more expensive from a hardware vendor.
This has been coming for a long time. First, AT&T spun off their less profitable stuff into Lucent, and then Lucent spun off their dog investments into Avaya. It's all part of the plan.
I hope the pensioners and benefits obligations get paid the money they are owed ASAP, because this is a classic story of private equity (Silver and TPG) financially engineering a cash-siphon from a dying dinosaur and then "phoning it in" when it came to the manage out/re-price of new risk.
I don't have a problem with mega private equity and I can see some kool-aid drinkers saying "any acquisition made in October 2007 (the technical peak of the pre-crisis market) was going to have a tough time working out as played". But this was a deal designed to fail from the start.
Basically the private equity stunt here was: find a company that has $100, take $99 of it, use the company's last $1 to buy a lottery ticket, try to convince other investors that $1 ticket is a winner. They failed huge here.