Vancouver softphone firm buys NewHeights

Softphones are a niche communications product, a piece of software that mimics a desktop telephone but conveniently saves space by sitting on a PC or laptop, where it can interact with contact management applications. However, they may be about to become more interesting following the multi-million dollar merger of two Canadian softphone makers involving Mitel Networks chairman Terry Matthews.

Last Friday CounterPath Solutions Inc. of Vancouver, which makes consumer softphones for carriers including Vonage, AT&T and British Telecom, bought NewHeights Software Corp., an Ottawa developer of enterprise softphones for Mitel and Nortel Networks customers co-founded by Matthews’ son, Owen.

As part of the deal Terry Matthews’ private investment company, Wesley Clover – which partly owns NewHeights – is putting $6 million into CounterPath, becoming that company’s biggest shareholder.

Terry Matthews becomes chair of CounterPath, while Owen Matthews and CounterPath founder, chairman and CEO Mark Bruk are now vice-chairmen of the merged firm. NewHeights president Greg Pelling becomes the new CounterPath CEO. The result of the complicated deal will see CounterPath with some $8 million of new cash or cash commitments involving the money from Wesley Clover, NewHeights, shares issued by CounterPath and some $2 million from CounterPath’s original investors.

That money, said Bruk, serves two purposes: to assure carriers that CounterPath is financially stable and to fund growth including building a VAR channel. Just as important, Bruk added, is having Terry Matthews’ name at the top of the organization chart.

“To have him agree to be part of CounterPath really puts the stamp of approval on the company,” he said. While CounterPath is known among mid-level managers of telcos and cable companies, Matthews can bring the company’s name to C-level executives, he said.

Ronald Gruia, a telecom industry analyst with Frost & Sullivan in Toronto, said the deal could be timely. Telcos and service providers worry that Skype and Google could issue their own softphones and carry away customer loyalty, he said, and carry away possible revenue if the softphone carries ads or links to other companies’ services.

What providers want is a softphone with a “sticky interface” with their brand name that will keep customers with them, Gruia said. “I think as carriers start wanting to deploy personal communications managers that will allow users to build an affinity with their brand there is opportunity for this market to explode.”

Other softphone makers include FirstHand Technologies of Ottawa, SpectraLink and Nuvoiz.

CounterPath was founded in 2002 as Xten Networks by Bruk and two others to create Windows softphones for Internet service providers like Vonage. A Macintosh version was added later.

A reverse take-over of a company on the Nasdaq over-the-counter board put the company public in 2004. Despite a roster of leading telcos it had trouble raising more money, forcing Bruk’s brother being one of the leading investors.

CounterPath’s products include the Bria voice and eyeBeam video VoIP softphones, but it also has a software development kit that NewHeights had been thinking of licencing for a year. Eventually the companies decided that coming together was a more sensible idea.

Among the advantages is that technology from NewHeights’ Desktop Assistant and Quick Conference audio conferencing software can be added to CounterPath products for telcos, said Bruk, who are interested in offering softphones with social networking capabilities.

Meanwhile with NewHeights’ sales team, CounterPath can accelerate its plans to offer products to telecom integrators selling Mitel, Nortel, Alcatel and other PBX systems to organizations.

“Being able to bring on a team of people that have worked together [from NewHeights] is not easy to do,” Bruk added. However, NewHeights software development team is based in nearby Victoria.

It will also be able to fund development of a softphone for handhelds so carriers can offer a solution for many devices, a possibly buy other softphone makers. In one way, the deal allows NewHeights to go public. Bruk also said it also accelerates his plans to take CounterPath onto the Nasdaq small cap markets.

While the deal looks like a reverse take-over of CounterPath because of Terry Matthews’ position and the fact that he’s the largest shareholder, Bruk said it’s not. The combined company will have about 100 employees.