Business

TERRY'S NEW FIELD OF DREAMS

Why rest? Canada’s feistiest high-tech billionaire is out to make it big-for the third time in his life

ROBERT SHEPPARD September 3 2001
Business

TERRY'S NEW FIELD OF DREAMS

Why rest? Canada’s feistiest high-tech billionaire is out to make it big-for the third time in his life

ROBERT SHEPPARD September 3 2001

TERRY'S NEW FIELD OF DREAMS

Why rest? Canada’s feistiest high-tech billionaire is out to make it big-for the third time in his life

Business

ROBERT SHEPPARD

in Kanata

The man can talk. Nearly two hours into the interview and Terry Matthews is just starting to warm to his current plans, the big comeback that has his fellow high-tech titans wondering what he knows that they don’t. So far we have been through the history of early Roman fortification in southwestern Britain, the Arthurian legend, the exploits of Henry V (“one tough swine”—a favourite Matthewsian accolade—born in Monmouth, Wales, just down the road from the entrepreneur’s own humble birthplace), a quick history of iron bridges and the origins of metallurgy, brass spinning and the Industrial Revolution, all centred around the coalfields of southern Wales. “Everything started with coal,” says Matthews, who comes from a coal-mining family and who introduces himself by tossing a lump of hard black anthracite across the desk. “That was the energy source. One Welsh company I know something about shipped 180 iron bridges. To Argentina. On sailing ships. Because iron bridges dont bum.” He fairly barks out the punchline, his brogue thickening, his chesty chortle deepening at the audacity of innovation.

One tough swine? Outwardly perhaps. Although the book on Terry Matthews is that—for better or worse—he is a true sentimentalist, loyal to a fault. He is someone who names his companies after the places he grew up, who bought the maternity hospital where he was born and turned it into a world-class resort (Celtic Manor, it’s run by his sister, his eldest son works there). He also has a knack for making his top employees, at least those who put in the crazed day-long hours he does, stock-option millionaires.

Little known outside his own industry, the way he seems to like it, the 58-year-old Matthews may well be Canada’s most successful high-tech entrepreneur, a legit billionaire who started off soldering circuit boards in his partner’s basement beside the kids’ toys. Brash and entertaining, he is also a corporate recluse: he makes it a practice not to sit on boards of companies he doesn’t have a stake in—he doesn’t want to dilute his energies. “He’s probably the only CEO you never see keynoting a business conference,” laughs telecommunications consultant Ian Angus, who has tried on more than one occasion to lure Matthews to a podium. “But he inspires remarkable loyalty. Even in the bad times nobody has a negative thing to say about

Terry Matthews.” All they say is he works like a fiend, talks at the top of his lungs and has no hobbies to speak of outside of starting companies by the pocketful and drinking beer. Mind you, he does seem to enjoy the brassiness of industrial history, perhaps because it mirrors his own.

Thirty-two years ago, Matthews, then 26, came to Canada on a holiday with his wife, Ann, and stayed on to build two fortunes, selling the stuff—the iron bridges— of the telecommunications revolution all over the world. Mitel Corp., the company he founded with the flamboyant Michael Cowpland in Ottawa’s fledgling hightech suburbs in 1973, rode the TouchTone phone craze into the mid-1980s before it faltered (the accounts differ) and was sold to British Telecom. Kanata-based

Newbridge Networks Corp., his company, the one he named after the small Welsh town where he spent his childhood, had 6,000 employees and $1.8 billion in annual revenue when it was sold—against his wishes as chairman—to Frances telecom giant Alcatel SA for $10.4 billion in February, 2000.

The deal left Matthews set for life with four per cent of Alcatel, the largest single shareholding. (“It’s a good relationship, by the way,” he says of Alcatel, whose Canadian operation, in the Ottawa suburb of Kanata, is in the former Newbridge building, just a parking lot away in the industrial park that Matthews almost singlehandedly

built through a private holding company.) By one recent tally, he is the eighth wealthiest Canadian and the richest Welshman— a dual citizen, he was knighted this summer to the chagrin of Jean Chrétiens Ottawa, which frowns on foreign titles for Canadians—with a personal fortune of roughly $2.8 billion.

But the Alcatel arrangement also left him feeling unfulfilled, maybe even a tad vengeful. So what that he is one of Canadas largest venture capitalists, flitting seamlessly between his native Wales and his adopted Kanata, a joined web of (now) silicon valleys—with at least 50 high-tech startups to his credit—completed by a series of Matthews-built golf courses (and the man doesn’t golf!). He wants another multibillion-dollar corporation with all

the creative sandboxes and business crises that only such an enterprise can bring.

So a year ago, he ensconced himself at one of his smaller startups, a $50-milliona-year company specializing in video surveillance technology, and renamed it March Networks Corp. The name comes from its March Road location in Kanata, which used to be called March Township, which drew its name from a former Earl of March who was once the big mucky-muck in the area known as The Marches in southern Wales where Matthews was born. Matthews revels in this kind of weird Druid-like serendipity, something that drives even his many admirers a little batty.

Then in February, he bought the old Mitel name and its communications business at a fire-sale price: $350 million for a

company with nearly $700 million a year in revenues. And now—possibly as early as October, but more likely in March (the lawyers are fiddling with details, and there is that serendipity thing to consider), he plans to merge the two into one decentsized startup under the March name. The goal is to create the black boxes and software that will link the now separate systems of voice, video and data communications. The iron bridges of tomorrow.

In the Matthewsian view of the future, no longer will businesses be organized around separate arrangements for telephones and desktop computers. You can have both “appliances,” as they are called, on your desk. But they will be hooked to the same Internet-based servers. That means, at a minimum, you can check your voice and e-mail messages in the same place, co-ordinated by voicerecognizing software. It also means, with a little video involvement, you can see who you are telephoning and what is going on in your universe and store the data for instant retrieval.

The screen on your phone (or PC, your choice) can be programmed to scan the latest stock quotes or to pick up the video feed from your child’s day-care centre. (The day care in the Kanata research park is already being wired up to a Web site for anxious parents.) What’s more, the security camera in the classroom can be programmed to respond or sound an alarm when it hears certain key words like help or the sound of breaking glass.

Brave new world? Oh yeah. But the corporate structuring has more the feel of a spaghetti western. Hoisting himself back in the saddle, Matthews has gone out and rounded up many of the old gang for one last ride into Dodge. His chief technology and marketing guys are both old Newbridge hands. Original Mitel-ites are scattered throughout the new organization. “The joke around here is that Terry went out for coffee 15 years ago and now he’s back,” says one.

At a time when high tech is in a tailspin, when giants like Nortel and Lucent are laying off staff by the truckload, Matthews is almost the only light in the heavens. In recent months, he has taken on an additional 150 or so engineers and ratcheted

up research and development spending by $40 million more a year—much of it from his own pocket. He has used the downturn to poach Don Smith, a former top Nortel executive (and before that a Mitel engineer; the two go way back) to be his CEO and to mollify those who say Matthews doesn’t have the patience for the day-to-day grind of executive operations.

The plan is to stay a private company at least until there is a tech turnaround in sight, and three or four good quarters to show. So—a couple of years away anyway. This way there are no public shareholders to mollify, to get in the way of Terry and his customers or Terry and his beloved engineers. “He’s kind of like a god around here,” says one newly acquired employee drawn into the merger. Perhaps more like an evangelist. At Mitel and Newbridge, his salesmanship was legendary: he had a Rolodex the size of a cow and was fearless about who he called. He’d also hard-sell his own engineers. “When I first started at Mitel as a junior designer, the guy would blow in and say what do you think about this’ and we’d say ‘Terry, you’re insane,’ ” observes Fred Gillette, now an engineer at March. “Then he would go out and promise it to a customer and somehow we’d figure out how to deliver it and there would be high fives all around. After he’d done that about 10 times you have to wonder, what does he know that I don’t.”

Keep wondering. To drive home his points, Matthews’ meaty hands thump the table and you can’t stop him from drawing out his ideas on the ever-handy greaseboard, his wiping hand getting blacker with every revelation. “This stuff is missionary,” he says, the gaze never wavering an inch, “and I’ve been around long enough to know that the timing is right. This is not a new shiny thing I’m trying to sell you.” (A coal man to the last, he is no fan of shiny things.)

“This is stuff you’ve already got and you know how it works and I’m saying ‘I can make it better,’ ” he continues. “And if I’m right I become Mr. Big just like in the days of Mitel when the growth just shot up. And if I’m right we’ve caught a wave. And it’s not a regular wave. It’s a riding wave.”

If he guesses right, Terry Matthews may not only become Mr. Big again but Mr. Big Brother, an ironic twist on someone who guards his own privacy with the zealousness of a papa bear. Data technology has always had an intrusive element. Marrying it to video and something as ubiquitous as the telephone may carry it to a whole new level.

Matthews’ initial targets are schools, retail stores worried about pilferage and employee safety, nursing homes, and financial institutions in the United States that are being forced by new regulations to resolve customer disputes quickly. March-Mitel is already shipping a 24-port box that can

Business

link together a customer’s voice mail, security cameras and desktop computers in the same unit, allowing managers a fingertip scroll through their messages and quality control. A much larger unit is almost ready for production.

Concerned with safety, a Scottish school board with 242 schools has begun installing the Mitel Internet-based system in its classrooms. Soon parents will be able to dial in (or use the Internet) to get a voice readout of their childrens assignments. In Halifax and Moncton, a pilot project is being announced this week to monitor some of the basic home-care requirements of elderly patients via a video nurse based in a central office. A camera sits in a discreet little box by the TV while shut-ins are guided through a self-examination from afar. In Georgia, a bank has set up the March system to videorecord certain customer transactions.

These are opening gambits. The poten-

tial is enormous. Virtual nurses will be able to make two to three times as many “home” visits as regular ones. Financial institutions will be able to cough up a video or a telephone transaction within minutes—that’s the difference here, the speed of it all. You just hit the search button, the software will capture key words that were spoken or sort by date and time. Everything is recorded and stored in one big digital maw. Big Brother? “Oh I don’t deny that,” says Matthews cheerily. “But this is a tough world. There are things that were not acceptable five years ago, that were maybe not technically possible. But on rethinking, recording of activities in a classroom is right up there with the gods.”

Can he pull it off? The financial plan is simple enough. Get back into the smallbusiness markets that Mitel vacated and also start selling around the world again, not just in the three main markets of Canada, the United States and Britain. To

that end Matthews has already opened sales offices in Tianjin, China, Hong Kong, Seoul, Sydney, Australia, and Auckland and is working his Rolodex again to piggyback on some of his old customers and their international networks. With the roughly $750 million in annual revenue right now between March and Mitel, Matthews says he intends to “double that and then double it again within four years,” leaving him with a Newbridgesized conglomerate in less than half the time it took him the last time out. “That makes it a whole new category of company,” he says. “I can start lifting bigger and bigger weights.” Then he will go after the big central-office systems. “It will upset some of the big boys,” meaning the Lucents, the Nortels, the Ericssons, he says. “But I will be there.”

Be there. Been there. Some remember the dizzying heights, some the troughs.

MATTHEWS’ MAIN ASSETS:

■ Four per cent of Paris-based telecommunications giant Alcatel SA, valued at $1.3 billion.

■ Celtic House International Corp., an Ottawabased venture capital firm with $1.5 billion under management; Matthews is “principal funder.”

■ Celtic Manor, a major resort and conference centre with three golf courses in southern Wales; a recent expansion cost $250 million.

■ Kanata Research Park Corp., a private real estate arm that owns 135,000 square metres of office space and is building a hotel and golf course in an Ottawa business park.

■ Majority holding in March Networks,

a $50-million company soon to be merged with:

■ Mitel Networks (90 per cent), a telecom supplier, bought this year for $350 million.

Mitel was the high-tech supernova of its day, doubling its revenues in the early going until the Americans ordered the breakup of the all-powerful AT&T telephone giant in 1982, causing Mitel to lose the inside track with its then biggest customer. Mitel was also late to market with one of its more ambitious switching products, leaving Matthews with an indelible lesson: “Better never than late,” he says, an aphorism that may account for at least some of his manic ambitions.

Newbridge also shot off to a fast start. But it, too, had product problems in the late-1990s. Some customers refused to pay their bills; the stock dropped like a stone. Newbridge righted itself for a time but it always seemed to have problems keeping a strong number 2 in the president’s chair. The board kept trying to push Matthews out of the day-to-day operation: some of his executives joked they had to set out “Matthews traps” to keep him from

hijacking their projects or starting ones that weren’t budgeted. (His solution: he god-fathered private startups to do development work that was then sold or licensed back to Newbridge.) Eventually, though, the competition from much larger firms increased, institutional shareholders panicked and the board met behind the back of its chairman and founder to orchestrate the sale to Alcatel.

Still, they were two great rides that rewarded a not insignificant number of software engineers and shareholders and put Ottawa on the map as Silicon Valley North. “Look,” says venture capitalist Denzil Doyle, a former Newbridge director and a kind of village elder in Canadas high-tech industry, “there are about 75,000 high-tech employees in the Ottawa area today and there is no question in my mind that at least a third of those jobs can be attributed to Terry Matthews. The

man does know how to recognize trends.” Matthews doesn’t call them trends, mind you. He prefers waves or, his favourite term, “disruptive technologies.” Like the Touch-Tone phone that enabled users on their own to find the extension they wanted or do their own banking. Or the iron bridges that supplanted wooden ones because iron bridges don’t bum. And now Matthews feels he has a truly disruptive technology again at his disposal, something to cut through established business practices like an Excalibur. The business press is already having some fun with the imagery: the once and future King of Kanata, they call him. And while Tony Blair’s government made him a knight in June it would be wrong to take this Arthurian stuff too far. Imperious? Sure, but there is something decidedly elemental about Matthews’ ambitions. He is not so much Lord of the March, but the march itself. Ever onward. El